UK Lands Into ¡®Cost Of Living¡¯ Crisis As Inflation Hits 30-Year High

Millions of households in the United Kingdom are facing a devastating cost of living crisis this year.

With inflation jumping to a 30 year high at 5.4% (highest since March 1992), the household budgets of millions of people have squeezed down significantly, and the road only seems to get tougher and tougher.

Even though the UK Treasury has announced an ¡®11th-hour¡¯ package to try offsetting some of the worst impacts, the concern surrounding the country¡¯s lowest earners, seems to be far from resolved.

The Inflation Worry

shutterstock

Also Read: How Turkish Currency Lira's Crisis Is A Gain For Its Crypto Industry

The Bank of England has said the official gauge for the annual increase in living costs is expected to rise further, with a peak of close to 6% expected by April 2022.

Some economists have even warned that this inflation could not only rise further but also remain higher for a longer than expected period.

The Crisis Hitting Poorest The Most

Although many advanced economies around the world are dealing with similar inflation problems, the UK is believed to have added even more disruption than other nations due to Brexit.

The crisis¡¯ impact has indicated that the prices are rising at similar rates for both rich and poor households, as per official figures.

However, as it is the household income levels that influence the personal experiences of inflation, the poorer households are the ones which are finding it harder to cope with the inflation rates on essentials, such as energy and food, which form a larger proportion of their shopping basket instead of the discretionary items.

Also, as per the Resolution Foundation, Britain¡¯s poorest households are expected to be hit hardest by the increase in energy bills, since they spend proportionately more of their income on energy.

And that¡¯s not all.

Also Read: Afghanistan¡¯s Currency Crisis Leaves Millions At The Risk Of Starvation

All Areas Of Life Affected

shutterstock

Petrol and diesel prices are soaring high and hit their highest levels on record in recent months, resulting in not only the motorists suffering but also adding to business costs, which is driven by a sharp rise in global oil prices after lockdown.

After plunging to about $20 around April 2020, the price of Brent crude (the most important type of crude oil used in Europe) has since risen to the highest in seven years at almost $90 a barrel at present.

Even though the government has frozen fuel duty for 11 years, which would save an average car driver a cumulative ?1,600, critics are of the view that the policy has added to carbon emissions, whereas more steps could have been taken to invest in greener electric vehicles.

Also, the low-income single-adult households could be forced to spend around 54% of their income on gas and electricity in the coming months.

What makes all this worse is that even the wages are stagnating and expected to remain that way for two years, with high rates of inflation eroding the spending power of workers¡¯ pay packets. The average pay, too, is expected to shrink this year.

Also Read: How Sri Lanka's Economic Crisis Has Led To Used Cars Costing More Than A Luxury Flat

Tougher Days Ahead From April 2022?

shutterstock

Another cause of worry for UK households is that consumers, who have been relatively insulated so far by the government¡¯s energy price cap, may face the heat soon, as the industry regulator, Ofgem recalculates the limit to reflect wholesale market prices from April 2022.

From April 2022, households are expected to see their gas and electricity bills go up by about 50%, indicating an increase of about ?600 for an average annual utility bill.

Also, the Bank of England expects the consumer prices index (CPI) to climb to about 6% by April 2022, and the International Monetary Fund (IMF) has warned that inflation and Omicron will dent global growth in 2022.

Overall, UK households are in dire need of a string of solid measures to cope with the ¡®cost of living¡¯ crisis, or else there could be worse days knocking on the door in the coming months for the nation.

Also Read: How Turkey's Currency Crisis Is Hurting Your Favorite Nutella

For more of such latest financial news and personal finance content, keep reading Worth. Click here