When will the cost-of-living crisis end?

It feels like the cost-of-living crisis has dragged on forever. Are we any closer to a conclusion?

It feels like the cost-of-living crisis has dragged on forever. Between the pandemic and lockdowns, the energy price shock, the rising cost of living and increase to car insurance premiums across the board, we’ve barely had time to catch our breath these past few years.

But as we enter the fourth year of the cost-of-living crisis, are we nearing a conclusion? Are there any positive signs of growth and change on the horizon? The answer, like many things, is not likely to be a simple one. And then of course, there’s a crucial conundrum – what comes next?   

How did we get here?

When the cost-of-living crisis began in 2021, it was because people’s ‘real’ disposable incomes (i.e. adjusted for inflation and after taxes and benefits) were falling. Essentially the rate of inflation was higher and rising faster than average wages.

The key players were energy bills, where there was an unprecedented £700-a-year rise in cost, petrol and diesel prices, which peaked in the summer of 2022, and food inflation reaching a record annual rate of 11.6% in October that same year.

There was also a major shock for mortgage-payers, as the Bank of England base rate increased 14 times between 2020 and 2023. It’s remained at 5.25% since August, with those on variable rates feeling the brunt and those nearing the end of their fixed-rate tariffs dreading what’s to come. It’s not been easy for renters either.

Overall, inflation reached 11.1% in October 2022, a 41-year high. So, with daily essentials rising at rates not seen for a generation, millions across the country have been sacrificing on basics and struggling with debt. And while food prices, fuel costs and the energy price cap have all reduced since the very worst of it, the aftershocks are still having an acute impact on people’s wallets.

At the time of writing, inflation is at 3.4%. But that still means prices are elevated, after a period of extreme strain on our incomes.

Will prices ever come down?

It’s unlikely that prices across the board in the UK will return to 2020-2021 levels. For prices to fall, inflation would need to go into negative figures (deflation, as opposed to inflation). This is a rarity and isn’t really a good thing for the economy either.

The ideal scenario is for prices to stabilise, and grow more slowly, while real wages catch up – and progress is being made on this front already. Wage growth underwent a boost in last summer and matched the pace of inflation.

Average pay growth was 5.8% in the three months up to December, down from 6.7% on the three months to November, according to the Office for National Statistics. That’s still over the rate of inflation, but only just.

It’s worth remembering that this is just the average. Not every worker has received a pay rise that matches inflation. And it won’t feel like much of a boost for those who hit, or were close to hitting, breaking point.

So, when can we say that the cost-of-living crisis is over?

Here at Howden, we want to remain positive, after all these situations have ebbed and flowed over the decades. The simplest response to the question is that the cost-of-living crisis will be over once prices stabilise and our wages have risen enough to match living costs. Some experts are tentatively suggesting that with positive wage growth and inflation reducing, you could say there are ‘green shoots’ on the horizon.

However, with the scaling back of government financial support to help many manage the crisis, and the dents in people’s wallets, others are concerned that things won’t improve anytime soon.

The Office for Budget Responsibility has warned of a 3.5% drop in living standards by 2024/25 compared to pre-pandemic levels – the largest reduction in real living standards since ONS records began in the 1950s.

One estimate, from the Resolution Foundation, was that while the cost-of-living crisis should ease this year, real wages are not expected to return to 2021 levels until 2027-28. That’s still a long way off. So while the crisis might be officially over soon, the effects will weigh on us, on our families and our futures for years to come.

What happens next?

Ultimately, we’re never going to get a specific date on which this cost-of-living crisis ends. What’s more likely is that it will fizzle away as things improve, and before we know it, the next cultural moment will be dominating headlines.

But as things do calm down, we have to remember that not all the problems of the cost-of-living crisis are resolved. Many of us are simply accustomed to these higher prices, stretching our budgets to absorb bigger bills, while cutting back on day trips, meals out, and travel. And for some, the essentials are unaffordable too.

Citizens Advice Chief Executive Dame Claire Moriarty warned that the impact of sky-high prices will be felt “for years to come”, as more than five million people live in households behind on their energy bills. “With the price of energy still far higher than just three years ago, many people will struggle to pay off these debts,” she continued.

What’s more, some 93,680 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance during the last quarter of 2023. That’s 7% higher than the previous quarter, and 25% than that same period in 2022.

Money worries are the most common cause of anxiety in the UK currently. One in three people say they’re worried about being able to afford to pay bills, while other cited debt and unemployment as the cause of their stress. And 37% of those with anxiety are ashamed to talk about it with anyone.

Howden’s here to help!

We understand how it can be hard to open up about money worries versus the rising cost of insurance. There are many ways we can help, from tweaking your policy to splitting your payments. Why not pop in to your local branch, and talk to the team over a cuppa?

We’ve also produced a handy money saving guide! You see, we’re on a mission to not only help you save money on your insurance, but also on your shopping, energy bills and more! Click here to download your copy for FREE.

Find your local branch here, and stop by or give us a call.

Sources: BBC, The Big Issue, The Times, The Guardian, ONS, Statista, The Independent, Institute for Government, Gov.UK, The Resolution Foundation, Mental Health Foundation.

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