Crisis. It seems like these buzzwords have taken over our lives recently. But what exactly is this Cost of Living Crisis and what is causing it? The cost of living crisis refers to the fall in ‘real’ disposable incomes that the UK has experienced since late 2021. The latest Office for National Statistics (ONS) report into the rising cost of living found that nearly a quarter (23%) of adults reported that it was ‘very difficult’ or ‘difficult’ to pay their regular household bills when compared to last year.
It has predominantly been caused by high inflation rates, outstripping wage and benefit increases, and further exacerbated by recent tax increases. UK house prices are rising by 9% a year – the highest rate for over 40 years. The Bank of England warning that inflation might reach 10% within the next few months, with food and fuel prices stretching budgets even further. Fuel prices are also surging, with average petrol costs hitting 161.8p per litre in April 2022 compared to 125.5p in 2021 – the highest on record. The Bank of England governor says rising global food prices are also a “major worry” and shopping bills are continuing to increase.
There has been talk that the current crisis is a direct result of the war in Ukraine. But while the conflict is an important factor, there are many other causes that have contributed to the perfect storm afflicting UK household budgets in 2022: Covid: the effects of the pandemic cannot be underestimated. As well as the health impact, it has brought social and economic upheaval, from the multi-billion pound cost of furlough to devastation for the transport, travel, hospitality, entertainment and leisure industries.
This economic fragility means the country is ill-prepared for the cost of living crisis Weather: an unusually cold winter in 2020/21, especially in parts of Asia, saw demand for energy rocket on international wholesale markets, which had an impact on supply and therefore on prices. The cost of gas was going through the roof long before Russia invaded Ukraine Economic resurgence: as Covid receded, so the manufacturing and distribution sectors kicked back into life, triggering a further surge in demand for energy and more upwards pressure on prices Regulation: recent months have seen almost 30 UK energy suppliers go bust, with the cost of managing their homeless customers shunted onto household bills.
Now questions are being asked about why so many companies were allowed to flourish only to be brought down by higher wholesale prices Environmental concerns: most UK electricity has traditionally been produced by burning fossil fuels in power stations. The rise of the green agenda has seen a movement towards renewable sources of energy to produce electricity, such as wind and solar, with older power stations – particularly coal-fired ones – being closed as a result. But renewables are not yet able to provide sufficient power, meaning continued reliance on gas – which remains eye-wateringly expensive Supply chains: lorries need drivers and fuel. Both have been in short supply, and when the cost of distribution increases, so too does the cost of goods on the shelves.
Looking at the international picture, where it used to cost £3,000 to ship a container from Asia to the UK, it now costs £15,000 Agriculture: the farming and food production sector is a huge energy consumer – that’s one source of cost pressure. It also relies heavily on fertilisers that are produced using large amounts of energy – that’s another. And it needs an efficient and affordable distribution system, which has been lacking of late.
Farmers are also paying higher wages because, thanks to Covid restrictions, there have been fewer European workers available for picking and packing tasks. All this means farm-gate inflation, and higher prices in the shops Commodity prices: the price of raw materials has risen due to escalating transport and distribution costs, and that inevitably contributes to inflation across the board. Worryingly, Ukraine and Russia produce significant proportions between them of the world’s wheat supply, along with other staples such as vegetable oil, so the longer the war goes on, the greater the effects will be felt elsewhere.
It’s estimated that the average cost of living will increase by around £3,000 per household this year. You know things are getting bad when even Money Saving Guru, Martin Lewis is struggling to provide us with tips. That said, there are still ways in which you can battle rising costs.
Make use of the weather Washing your laundry at a lower temperature and drying it outside rather than in a tumble dryer can cut your energy bill by around £28 a year, according to the Energy Saving Trust. Make the most of those sunny days!
Get cash for recycling Many high street stores now offer vouchers or free products for recycling your old clothes and items. Recycling stations are now available in H&M stores, and you can even get a free MAC lipstick for taking back the empty packaging. John Lewis also has a recycling scheme for beauty products, so it’s worth checking if your favourite shops and brands do something similar.
Save water Water firms are handing out free water-saving gadgets via water efficiency site Save Water Save Money. This includes shower heads, which are normally £20, tap inserts (normally £5) and ‘Buffaloo’ cistern bags (normally £2). Free products that regulate your usage? Can’t go wrong!
Fix your mortgage Higher interest rates have also made most mortgage payments more expensive for some homeowners. This is where Green Mortgages can help. Borrowers who are anywhere near the end of a fixed-rate mortgage should start shopping around for a new one now. Interest rates are likely to go even higher so get in touch with our Green experts today to discuss how a green mortgage can help save you money.
Check for cashback on absolutely everything We’re used to looking for offers and discounts when we shop, but many people forget about the potential savings from cashback. Get into the habit of checking for cashback across apps like TopCashback and Quidco every time you buy online, especially for things like holidays, insurance and high-ticket items. Even small percentages add up quickly, and you’ll accumulate a balance which can be withdrawn to boost your coffers. Making use of cashback offers can also help boost your budget during this difficult time. You may be offered cashback and lower rates when making energy-saving improvements to your current home. For any advice on cutting your costs and to find out more about how a Green Mortgage could save you money, get in touch with our team on 01244 955 399
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