When will the cost of living crisis end and will prices in the UK ever go down? - The Big Issue (2024)

The cost of living crisis seems as though it has lasted an age. Although inflation is easing, people have faced prices rising at rates not seen in decades while their wages have not kept up. This has left them struggling with debt and sacrificing the essentials. So will the cost of living crisis end, and will prices ever come down?

Inflation fell steeply to 3.9% in the year to November, down from 4.6% on the month before. This doesn’t mean prices are falling – in fact, they are still rising, just at a slightly slower rate. Food inflation remains stubbornly high, with costs up by 9.2% on the previous year.

Even though there has been a drop in the inflation rate, prices are still rising and you will likely feel the pinch. What does inflation mean for you? And will prices ever come down? We break down everything you need to know about whether the cost of living crisis is ever going to come to an end.

What actually is inflation? And what does it mean for me?

The term “inflation” is the technical way of describing the rate at which prices are rising. But what does it actually mean and how does it impact your life? If you’ve noticed the cost of a bunch of bananas or a pack of loo rolls is still getting more expensive and your household bills keep on soaring, that’s because inflation has been high for, well, far too long at this point. The higher the inflation rate, the faster your bills increase.

The inflation rate of 3.9% in November 2023 means prices have risen by 3.9% on average in comparison to what they were in November 2022.But this doesn’t mean prices have stopped rising. Prices are still increasing and will continue to do so as long as inflation is in the positive figures.

If you want to see just how much more expensive your shopping basket is going to be as a result of inflation, you could use a price comparison website like Trolley. It has a grocery price index with data showing how much all your basic supermarket items have increased in recent months.

Will prices in the UK ever come down?

The simple answer is that UK prices across the board will probably never come down – and almost certainly not by very much – but our wages are supposed to keep up with rising prices to make us less likely to feel the pinch.

For prices in the UK to fall, inflation would need to go into negative figures, often called deflation. That is a rarity. The last time this happened was in 2015 when prices fell by a grand total of 0.1% because of a sudden drop in the price of oil. Before that was in 2009, during the global financial crisis, but economists disagree on the details as only one measure of prices was negative. You have to go back to 1960 to find another example of deflation.

But don’t panic. The cost of living crisis will come to an end eventually. Prices will stabilise and grow more slowly and real wages should catch up, with progress being made on this already.

For the first time in two years, wage growth caught up with rising prices this summer. Pay, excluding bonuses, increased by an average of 7.8% in May to July compared with a year earlier. This matched the pace of inflation over the same period.

This was boosted by one-off payments to NHS workers and civil servants following pay deals to end strike action.

The problem is, that not every worker has received a pay rise to match inflation – it’s an average across the economy. And for the millions of families who have hit breaking point during the cost of living crisis, it will not feel like much of a boost to their bank balances.

There are several reasons why many people might actually be worse off. There has been a rise in unemployment – companies were hit by high interest rates and more than 200,000 job cuts were made between May and July this year.

People face debt which has built up as they have struggled to cover soaring costs. UK households have a record £22 billion in unpaid essential bills including utilities, council tax, plus benefit and tax credit overpayments.

Around 7.8 million people borrowed money to pay their energy bills in the first six months of 2023, and Citizens Advice says it’s helping record numbers of people with energy debts before winter has even begun. It predicts that by the end of this year, it will have seen 26% more people in need of help with energy debt compared to 2022.

Interest rates have also led to mortgage payments rising. And as a consequence of this, landlords have increased rents. Many people face higher costs for housing.

And then there are food costs. Rising at 9.2% in the year up to November, that’s well over the rate of wage growth.

• How much should my pay rise to beat inflation?
• Millions of people on universal credit do not have enough money to live

When will the cost of living crisis end?

The cost of living crisis will be over once prices stabilise and wages have risen enough to match. With the record rise in wage growth this summer and inflation easing, the cost of living crisis “appears to be coming to an end”. But experts warn that the “real damage has already been done”.

The Office for Budget Responsibility warned of a drop in living standards of 3.5% by 2024/2025 compared to pre-pandemic levels. While this is half the peak-to-trough fall expected in March, it still represents the largest reduction in real living standards since ONS records began in the 1950s.

Senior economist at the Joseph Rowntree Foundation Rachelle Earwakersaid: “Millions of families will have little to celebrate at Christmas this year. Food price inflation remains high, despite the bigger than expected fall in headline inflation.

“Many families have spent the past year skipping meals and cutting down on food to try and cope with higher prices. Over two million families have already taken on debt to pay for birthday gifts and other occasions. As Christmas approaches, many more will face the reality of not being able to afford presents or a Christmas dinner this year.”

The Bank of England predicted that inflation will be back to “normal levels” by the end of 2025, by which they mean around 2%. That’s the target the government has set. But it doesn’t mean the cost of those essentials will come down. They’ll keep on rising.

According to the Resolution Foundation’s annual Living Standards Outlook for 2023, the cost of living crisis should ease in 2024. But it won’t fully be over until wages catch up for all households.

Brace yourself: real wages compared to prices are not expected to return to 2021 levels until 2027. For the typical household, incomes are actually set to be below pre-pandemic levels in real terms even in 2027-2028. So we still have a long way to go.

Wages grew at a record annual pace between May to July, matching inflation. But stronger wages mean concerns that price rises will take longer to ease, with the Bank of England likely to raise interest rates again.

It’s also important to consider the people who are getting a pay rise: in July, those in the finance sector enjoyed average pay rises of 7.6% in real terms, while people working in education saw their pay go down by 2.6%, according to The Equality Trust.

Public sector pay fell sharply in real terms between 2021 and 2023, according to the Resolution Foundation. In the three months to May 2023, average weekly pay was 9.2% below its real value two years ago – three times the fall experienced in the private sector.

Will energy bills come down?

Average annual household energy bills fell to £1,834 from October along with Ofgem’s energy price cap. But although this is a slight drop in the amount people will pay for gas and electricity, experts warn bills are still “dangerously high”.

The government’s energy price guarantee is no longer in place, with energy bills finally below £2,500. The energy price cap doesn’t mean no one will pay more than £1,834 – this figure refers to the amount a household will pay based on average energy usage. If your household uses more energy than average, you may pay more.

According to National Energy Action, it will leave 6.3 million households living in fuel poverty this winter, unable to heat their homes. Last year people were helped by a £400 energy support scheme, a lifeline for many households, but the government has not extended that this year.

“The price cap does not protect those who simply cannot afford the cost of keeping warm,” says Adam Scorer, the chief executive of National Energy Action. “That requires direct government intervention through bill support, social tariffs and energy efficiency.”

The government’s energy rebate scheme, a discount on household energy bills, ended in March. This had been a lifeline to many people, helping them save around £66 each month. The end of this support means people may not feel the positive impact of energy bills falling.

Simon Francis, coordinator of the End Fuel Poverty Coalition commented: “The latest price cap will send a chill down the spine of customers. People now face many more months with bills remaining stubbornly high. This will see them continue to use up their savings, run up credit card bills, fall into debt with energy firms or turn to food banks as the cost of living crisis deepens.”

Will house prices come down?

House prices soared to record highs last year but rising interest rates and the cost of living crisis havesent prices falling. That trend could be about to change.

The average UK house price, measured against final transaction prices, was £291,000 in August 2023, the ONS found. That’s virtually unchanged from a year ago but £9,000 above the lows seen in March 2022.

Halifax recorded the first rise in house prices for six months in October, up 1.1% to £281,974 on average but 3.2% down on October 2022. The revival comes after two consecutive months where the Bank of England has frozen mortgage rates.

Dibb explained: “One of the starkest cases is housing costs – 120,000 households renewed their fixed-term mortgages every month in 2023. This is because the majority are increasing from below 2 per cent interest rates which will remain high for a long time. That’s almost 4,000 people newly hit by a disposable income squeeze every single day.”

Read more about whether house prices will go down here.

Are prices rising at the same rate for everyone?

Unfortunately not. Prices are rising even faster for poorer households. This is because the costs of essentials are soaring at higher rates, and low-income families typically spend a greater proportion of their income on these items.

Food and non-alcoholic drink prices have risen by 9.2% in the year to November, down on the previous month but remaining stubbornly high. The Resolution Foundation has found that poorer families are most affected by surging food prices as they spend a far greater share of their family budgets on food (14%, compared to 9% for the highest-income households).

As a result, the effective inflation rate for the poorest tenth of households is around 2% higher than it is for the richest tenth of households.

Earwaker added: “It’s not right that our social security system, which is meant to protect all of us when we fall on hard times, doesn’t give families enough to afford the essentials. No one should feel ashamed, stressed or anxious because of the cost of Christmas.

“All political parties must commit to introducing an ‘essentials guarantee’ to universal credit to ensure everyone has a protected minimum amount of support to afford the essentials.”

Meanwhile, billionaires in the UK already have more than £683 billion of wealth between them. Between 2020 and 2023, billionaire wealth ballooned by almost £180bn.

Income inequality will rise every year and could reach a record high of 40.8% by 2027-2028, according to the Resolution Foundation’s predictions. What does this mean exactly? The rich are getting richer, and the poor are getting poorer.

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