Why is the Cost of Living Increasing in the UK?

Daniel Hall 15/02/2022

The cost of living has increased in the UK due to Brexit, inflation, supply chain issues and global squeeze on energy prices.

Since the start of the pandemic, prices have increased faster than at any time in the past 30 years and wages are failing to keep up.

Inflation Keeps on Soaring

You may not notice price rises from month to month. But right now, prices are rising so quickly that average pay is not keeping up.

In the 12 months to December, inflation rose to 5.4%. The Bank of England has warned inflation could rise above 7% this year.

The main reason is the rising global price of energy. This has meant higher energy and transport bills for businesses, many of whom pass on the extra costs to customers.

Supply problems and higher shipping costs also continue to hurt businesses.

UK Households Are Struggling Amid the Covid-19 Pandemic

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A number of measures will hit UK households:

Average gas and electricity bills are going to rise by £693 a year from April.
Many consumers are squeezed out of the market, leading to a slowdown in home sales.
Regulated rail fares in England will rise by 3.8% in March.
TV and broadband prices are also due to increase at that time.
Higher food, gasoline, and utility costs mean less money for savings or discretionary spending.
In April, companies, workers and the self-employed will start paying 1.25p more in the pound in National Insurance contributions under the Health and Social Care Levy.
Rising interest rates will make mortgage payments higher for some homeowners.

What Can Be Done To Reduce Cost of Living?

The very first step you should take when trying to reduce your cost of living, is to get on a strict personal budget. This will help you wrap your head around your spending habits, monthly income, and overall financial situation.

The Bank of England's traditional response to rising inflation is to raise interest rates. It has done this twice in the past few months. Since inflation is caused by external forces, such as the global squeeze on energy prices, then this might not be the answer.

The government might choose instead to cut taxes for consumers on items that are rising quickly. It is taking some measures to reduce the impact of energy price rises, for example.

If you are looking for ways to reduce your cost of living, and you are making monthly debt payments on anything at all, then getting out of debt should be at the top of your list.

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Daniel Hall

Business Expert

Daniel Hall is an experienced digital marketer, author and world traveller. He spends a lot of his free time flipping through books and learning about a plethora of topics.

Why is the Cost of Living Increasing in the UK?