Everything you need to know about rising UK living costs

After two years of uncertainty amid the ongoing coronavirus pandemic, many were hoping that 2022 would bring some much-needed respite.

However, the new year brings new concerns over a ‘cost-of-living catastrophe’, with economic think-tank the Resolution Foundation (RF) dubbing 2022 the ‘year of the squeeze’.

But why are living fees going up, and how much more can the average household expect to fork out?

Metro.co.uk spoke to some financial experts.

How much more will UK living cost?

RF said that from next April families would typically face a £1,200-a-year hit to their incomes.

At the same time, rising inflation – forecast to peak at 0.6% – means that real pay levels are set to stagnate, with real wages this December being no higher than the end of 2021.

Why have UK living costs gone up?

There are a number of reasons why we are seeing such a jump in costs.

James Andrews, Senior Personal Finance Editor at money.co.uk told Metro.co.uk, ‘The surge in costs has partly been driven by the energy crisis, which affected tens of millions of UK adults in 2021. The spike, which saw Britons paying more for their gas and electricity, was brought on by supply issues, staff shortages, and increased demand.

‘Sadly, the trend is expected to continue over the coming months, with some experts predicting that costs will increase by as much as 50% by April.’

In April, the cap on energy bills is expected to rise by around £500 a year while the cost of energy firm failures would add another £100 to consumer bills.

Energy is expected to account for 12% of the income of the poorest households compared with 8.5% now – meaning that many will have to choose between ‘eating and heating’.

At the same time, the RF said the freeze to income-tax thresholds and the 1.25% increase in personal National Insurance Contributions would cost the average household £600 a year.

For families in the top half of the income distribution, the NIC rise alone would lift tax bills by an average of £750.

Money-saving expert Nick Drewe, from online e-commerce platform Wethrift, added: ‘Another factor is businesses struggling to recruit lorry drivers and hospitality staff which is partly a result of the pandemic.

‘These sectors are one of the most reliant upon European workers, and with travel restrictions and those having to self isolate, fewer Europeans are available to transport goods. This will impact businesses’ abilities to operate, therefore forcing them to put prices up to keep afloat.’

He continued: ‘This shortage of lorry drivers has also impacted the shortage of goods across the UK.

‘With Brits stockpiling throughout the pandemic and a lack of drivers to transport goods, this has caused supply problems, pushing prices up.’

Katy Phillips, Senior Brand & Communications Manager UK at idealo, warned Metro.co.uk: ‘If the supply and demand issues persist, we could see ongoing price hikes of between 10-15%, on top of on the increases already observed in 2021.’

How can you stay on top of rising living costs?

Don’t lose all hope – there are so many things you can do to stay on top of rising costs.

James Andrews told Metro.co.uk: ‘When it comes to household heating, it’s usually a good idea to shop around regularly and switch to a cheaper provider, however, with the energy market in crisis, you should stay put for now and wait to see how prices change over the next few months. 

‘The quickest and easiest way to cut your energy bill is by turning your heating off when you’re not in the house or when you’re asleep.

‘Keeping the heat inside is essential. You can do this by using draft excluders on external doors, windows, and letterboxes, while reflector panels behind radiators funnel the heat into the room, rather than out to the walls.

‘More labour-intensive techniques include the installation of loft and cavity wall insulation as well as double glazing. Energy Saving Trust figures show that installing cavity wall insulation could save up to £245 per year, while loft insulation saves up to £215.’

Mr Andrews added: ‘To help manage your monthly costs, you could create an ‘envelope’ budget. This simply means separating your money out into pots, or envelopes, for spending on different things like bills, shopping, rent etc.’

This can easily be done through free money-saving apps.

Mr Andrews continued: ‘One of the greatest expenses for any household is the weekly shop. One way to get ahead there is by taking advantage of loyalty schemes, which allow you to redeem store points for discounts on purchases and other benefits. Meanwhile, many online supermarkets have introductory offers for new customers, while discount codes are readily available.

‘If you’re shopping online, then you also have the benefit of easily comparing prices between different stores.’

Mr Andrews suggests spending some time looking at each supermarket’s website to see which has the best prices.

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He added that cashing in on gift cards and vouchers is another great way to save some money.

Mr Andrews explained: ‘Shops make millions from unclaimed or expired gift cards, so don’t fall into their trap by saving yours for something special.

‘If you got one for Christmas last month, spend it now so you aren’t left out of pocket if it expires or the retailer goes bust.’

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