The Cost Of Living Crisis Explained

The cost of living crisis explained and how to manage it

By Matt Fernell, Editor-in-Chief at Last updated 25th May 2023.

Matt Fernell

The cost of living crisis refers to the fall in ‘real’ disposable income that many of us in the UK have experienced since 2021. 

What it essentially means is that the cost of everyday essentials that we need to live normal, healthy lives is rising much faster than average household incomes. 

The increasing prices of essential goods and services, such as food, housing, energy, and transportation, have been making it more difficult for people to make ends meet. This has been particularly challenging for those on low incomes, who are struggling to afford basic necessities.

What’s causing the cost of living crisis?

There isn’t just one cause of the crisis - a combination of factors has led to the situation we find ourselves in. Here’s a breakdown of the main reasons.


Inflation is the main driver of the cost of living crisis in the UK. It’s a term used to describe the general increase in prices of goods and services over time. When inflation happens, the same amount of money you have can buy you fewer things than before. 

So, if the prices of the things you need to buy go up, but your income stays the same, or goes up by a smaller amount, it can become harder for you to afford those things.

When inflation is high, it puts pressure on people's budgets, because the cost of living increases, but their income may not keep up with the rising prices. This can lead to a situation where people struggle to make ends meet, especially if they are on a fixed income or have lower wages.

Over the last couple of years, inflation has been growing rapidly in the UK. We have experienced a higher rate of inflation than many other countries, meaning prices for everyday goods and services have been going up faster in the UK.

The Consumer Price Index (CPI) - the main measure of inflation - hit an eye-watering 41-year high of 11.1% in October 2022 before beginning to ease. Worryingly, it has started to creep up again from 10.1% in January to 10.4% in February this year. 

Inflation in some areas is higher than in others, and one of the most worrying aspects of the cost of living crisis has been the increase in food prices. In fact, food inflation at the time of writing is at 16.8%, which is why we are seeing the cost of our weekly food shops getting higher and higher.

Energy prices

By energy prices we mean the amount of money you’re paying for electricity, gas, and any other forms of energy that you use to power your home, business, or vehicle.

In the UK, our energy costs have sky-rocketed over the last year or so, and this has been a real contributing factor to the cost of living crisis.

Electricity prices rose by 66.7% and gas prices by 129.4% in the 12 months to February 2023 and were some of the main drivers of the increase in the inflation rate.

With many people seeing their monthly energy bills doubling, it’s no surprise that more than three-quarters of people have cited this as the reason for the rise in their cost of living.

Here are some of the reasons we’ve seen such a steep increase in energy prices:

  1. Increase in global energy demand
  2. Fluctuations in supply and demand
  3. Increase in wholesale gas prices
  4. Government policies and taxes
  5. Investment in renewable energy

When energy costs are high, it can be difficult for people to afford to heat and power their homes, especially during the winter months. This can lead to a situation where people are forced to choose between paying their energy bills and other expenses, such as food and rent.

Wage stagnation 

Despite rising costs, wages in the UK have not been keeping up with inflation, meaning that many people are earning less in real terms than they were a few years ago.

According to the Resolution Foundation, workers in the UK are £11,000 worse off a year after 15 years of wage stagnation.

There are lots of different reasons that have caused wages to stagnate in the UK, including:

  • The decline of unionisation and collective bargaining power
  • The increasing use of technology and automation in the workplace
  • Globalisation and outsourcing 
  • Economic policies such as austerity measures

While inflation rates are higher than the rate of wage growth, the amount of disposable income people have in their pockets will continue to go down. 

How much does it cost to live comfortably in the UK?

How much it costs to live comfortably in the UK varies based on lots of factors like your personal circumstances and where you live. 

However, there are certain expenses that are essential for most people, such as housing, food, utilities and transportation. Here is a breakdown of some of the costs associated with living comfortably in the UK:

  • Housing: The cost of housing can vary significantly depending on where you live in the UK. However, house prices continue to rise across the country, with the average cost at £295,000 as of November 2022. The average rent is currently £1,175 per month, and the average monthly mortgage payment is £759. 
  • Food: UK food prices are rising at the fastest rate in more than 40 years. According to the Food Foundation, the ‘basic basket’ (what the average person could typically eat as part of a reasonably costed, adequately nutritious diet) for a woman has increased in price by 17% in the last year and now costs £46.61 per week. The male basket has increased by 22% and currently costs £51.89 per week.
  • Utilities: As mentioned above, utilities such as electricity and gas have gone through the roof recently. In fact, at the time of writing, the estimated bill for a four-bed house could be up to £2,300 a year, which is nearly £200 a month. 
  • Petrol and diesel: Although these have come down slightly in the last few months, fuel bills hit an all-time high last year at 191p for petrol and 199p for diesel. Many people were spending well over £100 to fill their cars. 

As the above figures show, when accommodation, food, bills, and transport are taken into consideration it has become increasingly expensive to live comfortably in the UK. 

What support is available for the cost of living crisis?

If you’re struggling to make ends meet, there is help and support available to you. 

One of the first things you should do is to check if you’re eligible for any government benefits if you’re not already receiving any. You might be able to claim benefits if you are:

  • Sick or disabled
  • On a low income
  • A carer
  • Responsible for children

You can use the Citizens Advice benefits calculator to check what benefits you can get, or if you can increase your current benefits.

You may also be eligible for a ‘cost of living’ payment if you’re getting certain benefits or tax credits. You don’t need to apply for this as it will be paid automatically if you’re eligible.

To help with the cost of energy, the UK government introduced the Energy Price Guarantee in October 2022. It means bills for a typical household paying by direct debit will be brought down to £2,500 a year.

This was set to rise by 20% on average on 1 April 2023, but this increase has been postponed until July this year. 

Citizens Advice outlines more ways you could get help for the cost of living crisis.

Tips on keeping your outgoings down

There are certain things you can do yourself to help you cope with the cost of living crisis in the UK. Try these simple tips to keep your costs as low as possible:

  1. Budget carefully: Make a budget and stick to it. Keeping track of your income and expenses so that you can see where your money is going is one of the best ways of staying in control of your finances. 
  2. Shop around: Look for deals and discounts when shopping for essential goods and services. Compare prices before making a purchase.
  3. Save energy: Make small changes to your daily routine to save energy and reduce your energy bills. The UK government has issued a range of energy saving tips and advice.
  4. Drive less: Consider using public transport instead of driving, or walking to get about if you can.
  5. Consider sharing costs: If you are struggling to afford essential goods and services, consider sharing costs with friends or family members. For example, you could share lifts to work or share a meal.

Remember, you are not alone in facing the cost of living crisis in the UK. By taking some simple steps to manage your finances, you can help to reduce the impact of rising prices on your household budget.

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.