The Effect of the Cost of Living Crisis in the UK

The Covid-19 pandemic was an unprecedented period of time, leading to job losses, pay cuts, and financial difficulty for millions of people in the UK and beyond.

However, since the drastic rise in energy and fuel prices, interest rates going up to the highest percentage since the 1980s, and inflation making everyday items more expensive, a study has revealed that this is causing more financial trouble to people than the pandemic.

1.6 million more households are struggling than the last time the study was conducted nine months ago. It means that one in six UK households - around 4.4 million - are estimated to be in 'serious financial difficulties'.

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The effects of the cost of living crisis

Many people are having to take critical measures in order to make it through each month. This includes significantly reducing the amount of food bought each week, cutting down on luxury items, and even cancelling insurance.

Those worst affected are renters, single parents, families with more than three children, and disabled people. A quarter of people have zero savings and more are relying on credit cards to help them get by. 

With costs continuing to increase, credit cards are not being paid off and more people are spiralling into worrying levels of debt that they cannot get themselves out of.

Households that earn over a combined amount of £100,000 are the only ones not being affected by the cost of living crisis, according to the study by Abrdn Financial Fairness Trust and Bristol University.

“This is the first substantial deterioration we have seen since tracking people’s finances when the pandemic started,” said Mubin Haq, the chief executive of Abrdn Financial Fairness Trust.

“Times are tough for everyone, but it’s those on the lowest incomes who are particularly feeling the effects of rising prices.”

Inflation in the UK

The proportion of households in the UK considered 'secure', has decreased to below a third - from 38% to 31%. Those in Wales and Scotland are feeling the pinch more so than people living in England and Northern Ireland, with more than one in five households in 'serious financial difficulty'.

Supermarket inflation rose to 8.3% in June, making it more difficult for the most vulnerable to put food on the table for their families in this period of economic hardship.

With energy prices set to increase once again in October, many are wondering how they are going to keep their houses warm in winter, alongside everything else that they need to pay for.

How to keep the costs down

Common practices that are being resorted to include keeping the heating off, using the shower and bath less, and reducing oven use. During the summer months, it's easier to keep energy usage down, but what about when it does get colder?

As society has reopened after the pandemic and more people are attending concerts, sporting events, and generally travelling and going out more, it has seen the economy grow again after at least 18 months of uncertainty.

However, with the price of everything rising, more households are going to decide to prioritise energy, food, water, and keeping a roof over their head over going out, which could possibly see the economy shrink again, thus making it even more difficult to get out of this current situation.

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Local businesses, including pubs, salons, and restaurants went out of business during the pandemic because they couldn't afford to pay staff and operate. Now they are back and thriving again, the cost of living crisis could conceivably see them returning back to pandemic levels of business.

It's a grim reality and one that nobody really seems to know how to get us out of. Let's hope for more encouraging news in the next couple of months. But with October rapidly approaching, it may get a lot worse before it gets better.