How the cost of living crisis is affecting the UK

The cost of living crisis. It's been all over the news and everyone seems to be talking about it - but why?

You may have heard grown-ups talking a lot more about the price of things or you might have noticed changes in your life because your family is trying to save money.

At the moment, the cost of food, fuel and energy just keeps going up in the UK, but the amount of money people are earning from their jobs isn't rising to the same level.

This is what people are calling the cost of living crisis.

Why are prices going up?

The rising cost of things is known as inflation.

That's when, over time, prices rise and how much you can buy with your money falls, so people want to be paid more in wages, which means it costs companies more to pay people to make things, which then pushes up how much they cost to make and the prices rise... and so on.

There are lots of different reasons why prices have risen.

It's partly down to an increased demand for fossil fuels like oil and gas which has meant energy prices have gone up.

We don't just need energy for our homes - businesses also need energy to make their products, heat up offices and transport goods.

There have also been shortages of goods like building materials and computer chips, which has created problems in the supply chain.

All of this means a bigger cost for businesses which is then passed onto the customers - us!

What's being done to help?

Every year the government announces something called a budget, setting out its plans for the country's money.

But last week, a 'mini' budget was released to try and help us out with the cost of living.

Chancellor Kwasi Kwarteng, who's in charge of the UK's money, also announced some of the biggest tax cuts in 50 years.

Adults pay tax on money they earn, and on things you buy, like food and drink.

Taxes are one way the government can raise money to pay for things.

The Chancellor Kwasi Kwarteng said cutting taxes would be good for the economy

The government hopes that these plans will stimulate growth in our economy - in other words, if people have more money, they'll go out and spend it, which will make businesses richer and if they have less to pay in tax, they'll share their money around more.

But not everyone's convinced the government's plans will help.

What are people saying about the plans?

Shadow Chancellor Rachel Reeves said the mini-budget would "reward the already wealthy"

In order to pay for these tax cuts, the government is going to be borrowing money and not everyone agrees with this strategy.

Economists - experts who study information on how a country or region makes and spends its money - have said the plans would help the richest in our society more than the poorest.

The Institute for Fiscal Studies - an organisation of experts who research the economy - said there was a chance the government's plans could work, but that it was also a big risk.

The pound has recently been at a record low, compared to the dollar.

After the 'mini' budget was announced, the pound started to fall.

The pound sterling is the currency we use in the UK to buy and sell things.

When our currency is worth less, it gets more expensive to buy from other countries.

The value of currency can go up or down depending on the demand for it.

People around the world buy and sell really big amounts of foreign currency - they're called investors.

When they lose confidence in a country, it can cause that country's currency to lose it's value.

Investors buy and sell different currencies to make money

So now financial experts worry this will lead to even more inflation and could cause another rise in interest rates - which means it will be more expensive for people to borrow money.

An organisation who help economies grow, called the International Monetary Fund (IMF), has advised the government to make a U-turn. Which means they think the government should change it's plans.

The Bank of England has also stepped in.

The Bank of England has stepped in, and is effectively lending the government money to try and help.

The Bank said it had to act because the financial market - where money is traded - became unstable as the pound started to drop, which could've led to higher interest rates on the amount of money the government has borrowed, leading to even more money being owed.

So, the Bank of England is basically going to lend money to the government to try and stabilise the situation.

The Prime Minister, Liz Truss, has defended the government's plans and said they'd continue to "deliver economic growth, jobs and opportunities".

However, on Monday 3 October, Mr Kwarteng scrapped a controversial part of his tax plans (cutting how much large earners have to pay) saying the issues around it have "become a distraction".

The Prime Minister, Liz Truss, took charge in September 2022

We want to know what YOU think

While this is a problem grown-ups will be dealing with, children and young people are likely to feel the pinch and maybe even worry too.

It's a really complicated topic to get your head around, which is why we've asked a BBC expert to answer some of your questions.

Do you have a question about the cost of living crisis?

It might be around why it is happening, who is affected or what is being done to help.

Let us know what your question is below.