Have you noticed how your salary barely stretches to the end of the month? It’s not because you’ve suddenly become a spendthrift – you are simply caught in the crisis of rising living costs.
With inflation at record highs, everyday essentials have become significantly more expensive, leaving you scrambling for ways to cover unexpected expenses.
To cope with this, you would start with the obvious options like cutting back on non-essentials. This on its own, however, might not be enough, especially if you face an unavoidable expense. In such cases, you might turn to borrowing either by dipping into your emergency savings fund or seeking a quick financial respite like £1,000 from Salad to bridge the monetary gap till payday.
That said, just like everything else in life, the cost-of-living crisis isn’t affecting everyone the same. Multinational companies are declaring profits and rich dividends for shareholders, yet it’s the middle class that ends up sacrificing their dreams and aspirations just to stay afloat.
So, let’s understand why everything is getting more expensive and what’s driving the crisis.
Bread as The Benchmark
Before we dive into the reasons behind the rising costs, let’s look at an instance to clearly understand the difference.
In 2015, the price of 800 grams of bread was £1.04, and during the pandemic years (2020-21), it cost £1.07. It all changed rapidly in 2022 when bread, a staple in our diet, started to cost £1.23; in 2023 and 2024, it was £1.37 and £1.40, respectively.
A couple of years ago, the UK inflation was at its worst, a 41-year high. As of December 2024, the inflation rate stands at 2.5%, higher than the Bank of England’s 2% threshold. Yet, prices of basic goods and services don’t seem to be reducing.
So, what’s the reason behind this?
The Pandemic Was The Root Cause
We need to go back to the beginning to understand the present cost-of-living crisis It’s seen that prices have skyrocketed since the COVID-19 pandemic. The global pandemic shut down the world for good, and each country suffered extensively. All of us can recollect the individual challenges we faced during the lockdown.
Most industries in the UK, except online retail and healthcare, suffered extensively due to the nationwide lockdown. This led to a sharp GDP decline and with businesses shutting down, there was a significant level of unemployment.
This period also experienced supply chain disruption and labour shortage, which made it difficult for the economy to bounce back.
Global Issues Impacted Domestic Economy
Geopolitical issues have greatly affected the domestic economy. Whether it is the Russia-Ukraine conflict or the Gaza-Palestine strife, everything has severely impacted the global financial system. The UK imports a large portion of its energy requirements, and the ongoing conflicts have led to volatility in the energy market and supply chain disruption, leading to an increase in gas and electricity costs.
The US-China trade conflict is further disrupting the supply chain, making it difficult for UK manufacturers to acquire raw materials. This has a direct impact on the cost of goods, especially in the construction and automation industries.
With so much unrest around us, the government has increased its spending on defence and cybersecurity, which trickles down to affect the common population with increased cost of living.
The world of finance is cyclic and it’s not just domestic policies but global changes that have a ripple effect over the entire economy in the UK and everywhere else.
Brexit Was The Tipping Point
Brexit, or Britain’s exit from the European Union, has had more negative effects that affect it to this day. The City of London alone has 290,000 fewer jobs than if Brexit didn’t happen. The Mayor of London, Sadiq Khan, stated in the 2024 Mansion House Dinner, that Brexit has been a major contributor to the current cost-of-living crisis.
Brexit has led to trade barriers, regulatory changes and labour issues among European neighbours. The average Briton is now £2,000 worse off because of Brexit. Research shows that there was a 30% increase in food prices between December 2019 and March 2023.
All these factors contributed significantly to the rising prices of commodities and the inability of the general public to afford even the necessities.
Borrowing Cost Has Increased
Whether it’s insurance, energy bills, transportation costs or borrowing charges, everything has seen a significant rise over the past five years. Mortgage costs have risen by £3,000 a year for a household. Similarly, the savings rate has also dipped significantly. While insurance premiums have jumped an exorbitant 43.1%, making it difficult for car owners to pay for their auto insurance.
Telecom companies have also increased tariffs since the pandemic. A consumer, on average, pays£222 for broadband and £114 for mobile.
The cost of energy has also risen steadily, putting immense pressure on the common people. When the cost of borrowing increases for businesses, it proliferates down the supply chain, impacting the common people.
In Summary…
Increasing cost-of-living has put tremendous pressure on the general public yet the conglomerates seem to be thriving. It’s become a common occurrence to receive poor savings yields while spending more on necessities.
More and more people are resorting to emergency or payday loans and other alternatives to pay for unforeseen expenses by the end of the month because their salaries don’t seem to stretch through.
A mix of national and international factors has contributed to this current crisis. While the looming fear of recession seems to have waned for the time being, it hasn’t completely vanished.
To survive the current conditions, it’s important to hone budgeting skills and follow a stringent saving mindset.
