Cost of Living Crisis: What is it and when will it end?

You might have heard the adults in your life talking about something called the Cost of Living Crisis.

The Cost of Living Crisis is a term people use to describe the effects of the rising cost of food and energy.

Since the current crisis began in 2021, many people in the UK have had to make changes to the way they live in order to save money.

But now it's been a few years since the crisis began, some are wondering when the cost of living crisis will come to an end.

What is the cost of living crisis?

Throughout history, the cost of most goods and services tends to increase over time.

For example, the Bank of England found that in 1990 the average price of a pint of milk was 25p.

But in 2020, that same pint of milk would cost a buyer around 42p.

This price difference is known as inflation, which measures how quickly the price of something rises over a year.

What can a pint of milk tell us about the cost of living crisis?

While the price difference between a 1990 pint of milk and a 2020 pint of milk is a big change, that change happened over 20 years and in that period, average wages for workers increased as well.

But in 2021 the average price of a pint of milk rose very quickly - faster than the rate at which the average worker's wages increased.

The Office for National Statistics found that in September 2021 a pint of milk was 43p - but a year and a half later, in March 2023 the average price of a pint of milk was 70p.

This is just one example of the many everyday items that rose in price.

From bread to electricity, apples to petrol - living in the UK has very quickly become much more expensive.

Find out more about what inflation is and how it affects the cost of living here.

What caused the Cost of Living Crisis?

The war between Russia and Ukraine has often been suggested as one of the reasons for the Cost of Living Crisis.

That's because many European countries relied on Russia for oil and gas, which is used to power transport and infrastructure.

Ukraine is also one of Europe's biggest exporters of agricultural products, including wheat and sunflower oil.

The war meant that supplies from Russia and Ukraine slowed or stopped completely, and so countries like the UK had to find other ways to get these products.

This led to an increased demand for products that were no longer as widely available. This made the products more valuable and therefore more expensive to buy.

Experts have also pointed to the aftermath of the Covid-19 pandemic, a shortage of workers, and changes to how the UK trades with other countries following Brexit.

You can read more about what caused the Cost of Living Crisis here.

When will inflation go down?

The good news is that inflation has already been going down.

In October 2022 inflation reached its highest rate in 40 years at 11.1%.

But by January 2024, the Office for National Statistics reported that inflation had more than halved to 4%.

You can find out more about how inflation is calculated here.

Does this mean the Cost of Living Crisis is over?

No, not yet. In fact, prices are still rising.

While inflation has come down a lot, it doesn't mean that prices are falling - it means they are still rising, just not as quickly.

The Bank of England manages the UK's interest rate

How has the UK reduced inflation?

The Bank of England is a public body that works for the whole of the UK.

It's in charge of many things, including the UK's main interest rate.

It can change the UK's interest rate - that's how much extra money you will need to pay back when you borrow - to encourage people to spend more money or to save their money.

This has a direct impact on things like inflation.

The Bank of England says it wants to reduce the UK's inflation rate to 2%, and is predicting that inflation will fall further later this year.

When will the cost of living crisis end?

Workers' wages rose by 6.2% in the last three months of 2023, which means they increased faster than the rate of inflation.

On Friday, the UK's energy regulator Ofgem also announced that energy bills would be falling to their lowest level since the Cost of Living Crisis started.

This means that people should be able to afford to buy more things than they could before.

But the Bank of England warns the reason inflation is still high, is because there is a shortage of workers in the UK.

Tony Wilson, director of the Institute for Employment Studies, said more needs to be done to help people get jobs, that in turn will help the economy grow.