For the last decade, a single word has been on the back of the mind of Dee Campbell, a former office worker and criminal law secretary: bills.
Or three words, rather: bills, bills, bills.
Dee, 65, lives on just £45 a week as decades worth of unpaid bills gobble up her bank account. She suffered from depression for years and was diagnosed with bipolar in 2010 leaving her unable to work.
The cost-of-living crisis isn’t helping this.
‘I’m on edge, worried, stressed and sometimes feel like it’s a hopeless situation and I’m very disillusioned,’ she tells Metro.co.uk. ‘I’m also in debt so I have to choose wisely where I spend what little money I have.’
Her ‘superpower’, she says, is knowing when supermarkets are about to roll out two-for-one deals or get out the yellow sticker guns.
Dee lives in a small Housing Association in London but struggles to have enough money to live life in the capital – or even leave it, for that matter.
‘I am sad that I can’t visit mum more often because of the train fairs,’ she says of her mum, who lives in Wiltshire, around 90 miles west of London.
Dee now relies on tools such as the Income and Expenditure Hub (IE Hub), an online portal that helps vulnerable people easily share their financial information with creditors to resolve their debt.
Dee’s not alone. Inflation feels like the word countless Brits can’t get out of their heads, with consumer prices rising at their highest rate in 40 years and wages failing to keep up.
While rent, transport and interest rate costs have reached eye-popping levels in recent months, food and fuel are among the most painful increases.
So, what is inflation?
Understanding inflation, like a lot of things about the economy, can be quite a task.
Some experts who spoke to Metro.co.uk have studied all things money for years but still don’t quite know the ins and outs of what makes inflation tick.
Inflation is the loss of purchasing power over time. So your pound coins don’t go as far today as they did yesterday.
The main inflation gauge is called the Consumer Price Index (CPI), which basically means how much people pay out of pocket for a basket of groceries and services today compared to this time last year.
Why is the UK experiencing inflation?
There are a lot of reasons why inflation happens, such as if there’s high demand for particular goods and services or when the cost of making things goes up.
Britain entered 2022 with inflation at just over 5%, with the aftershocks of the coronavirus pandemic and supply shortages still rumbling.
Yet in the 12 months to August 2022, domestic gas prices leapt by 96% and domestic electricity prices by 54% as Russia’s war against Ukraine upended supplies and demand for fossil fuels kept going up.
Energy prices have massive sway on the cost of, well, everything. Suddenly, how much it costs to keep the lights on in a factory, keep the machinery ticking and ship the goods off all go up.
Throw in a shortage of goods like building materials, and businesses are jacking up prices left, right and centre to pass on these rising costs to the consumer. Labour growth makes things even harder, as some employers raise pay to keep recruitment going.
Interest rates have also been on the up, dragging monthly mortgage payments up with it. The worth of a pound coin cratering after former Chancellor Kwasi Kwarteng’s mini-budget, meanwhile, only worsened everything.
Nick Smith, MD of insolvency experts Forbes Burton, says: ‘The cost-of-living crisis is another layer to the previous turmoil of past disruptions, causing trade concerns, cashflow disruptions and general battling to stay afloat. This inevitably has a knock-on effect on workers and their families.
‘Those same workers and their families are having to battle just like the employers are. Company closures and strikes are also common practice today, adding to the situation.’
So when inflation reached a peak of 11.1% in October – the highest since 1981 – it didn’t exactly come as much of a shock.
The Bank of England thinks inflation peaked last year and expects it to keep falling in 2023 to around 4% by the end of the year. The government are more optimistic, hoping for 2.9% to pave a way out of the cost-of-living crisis for good.
Right now, inflation is 8.8%.
‘The UK is defying the gloomiest predictions’
The UK is the only G7 economy with a gross domestic product (GDP) below its pre-pandemic level. The Bank of England doesn’t expect the country’s economic activity to get any better until the second half of 2024.
Tommaso Aquilante, the associate director of economic research at business data firm Dun & Bradstreet, says: ‘The UK is defying the gloomiest predictions, although negative growth is likely in 2023.
‘Obsessing over small variations in GDP however might be misleading, especially when the difference between a technical recession and a slowdown in the order of decimals. In this case, households and businesses may well not feel the difference, so the direction of travel is more informative than a statistical blip.’
Aquilante adds that people and businesses are more adaptable than they realise. ‘The UK economy has deep structural problems, but could prove more resilient than some think,’ he says.
The shortages of goods will soon ease as companies figure out how to predict and ship what people want to buy in a post-pandemic economy and the initial shock of Vladimir Putin’s war will eventually fade.
But inflation might prove to be a bit harder to shake off altogether.
‘Even if, as predicted by the OBR, prices were to drop to 2.9% by the end of 2023, on annual basis, inflation would still be around 6% or higher, continuing to erode households’ purchasing power and put pressure on businesses costs of the course of the year,’ Aquilante warns.
Will my energy bills be going down anytime soon?
For the year ahead, energy will continue to be a big player in how much inflation falls. Hunt extended the Energy Price Guarantee to June as part of his Spring Budget, meaning energy bills will be capped at £2,500 for now.
Aquilante says that energy price woes are steadily ‘abating’. As wholesale gas prices fall sharply, the energy consultancy Cornwall Insight has predicted that bills will fall from £4,279 to £3,208 from April and then mellow out to £2,200.
Though Professor Aoife Foley, chair of Net Zero at the University of Manchester, warns: ‘Prices are going to remain volatile and consumers and businesses are likely to keep facing higher costs as energy wholesale prices will remain twice as high as 2021 levels.
‘Even in the medium-to-long term, I don’t expect to see bills fall to the level they were at prior to the Ukraine war.’
Both Professor Foley and the campaign group Fuel Poverty action feel the government needs to invest more in greener energy rather than keep relying on topsy-turvy fossil fuels.
‘The pain we are suffering is not inevitable,’ says Fuel Poverty Action. ‘There is plenty of money to meet every household’s needs: it is just being sucked out of us by huge corporations – especially those in oil and gas.’
‘The cost-of-living crisis can end – and will end when people rise up and refuse to accept the theft of our lives and our resources,’ the group adds. ‘It is heartening that that is beginning to happen now.’
Dee also feels that the government subsidising energy bills is a temporary fix. A plaster on a wound that she feels is showing no signs of healing.
‘On the face of it I am being supplemented, but at the end of the day we are paying the price,’ she says.
‘I am angry that the energy companies are being compensated and inflation is still climbing. We as consumers will be paying the price for a long time.’
‘When will living standards rise?’
Dr Ricky Kanabar, an assistant professor of social policy at the Department of Social and Policy Sciences at the University of Bath, thinks people should be asking a different question as to when the cost-of-living crisis will end.
‘When will living standards rise?’ he says. ‘The answer is when real income does.’
The Office for Budget Responsibility (OBR), which provides economic and fiscal forecasts for the government, has projected living standards will fall 6% over the next two fiscal years in the largest drop since the 1950s.
For Dr Kanabar, this has been years in the making. Benefits for working-age people have been gutted by a decade of Conservative-led governments, only recently being gradually increased from 2020. While income overall has grown more slowly in the UK than in other Western countries.
‘For the average worker real weekly earnings in 2019 was at the same level as it was in 2007, before the cost-of-living crisis,’ says Dr Kanabar.
‘Since 2019, real earnings have declined due to rapid increases in inflation, which to the 12 months to January 2023 stood at 8.8%.’
‘The tax burden in the UK is now the highest it has been for around 70 years,’ he adds, referring to income tax thresholds being frozen since 2021, meaning millions have ended up paying more in tax.
‘To increase real incomes, needless to say, inflation needs to come down and it is forecasted to fall to around 4% by the end of 2023,’ he adds.
‘However, for economic growth and living standards this isn’t enough, the UK has a labour productivity and skills issue which needs to be seriously addressed.
‘Retaining or bringing back a small fraction of the people lost from the labour market since the start of the Covid-19 pandemic will not fix this, nor are the proposed measures in the March 2023 Budget to achieve this cost-effective, indeed skilled immigration is likely to play a bigger role in addressing the one million-plus vacancies currently available, and boosting economic growth more generally.
‘But even so, this won’t reverse the decline in living standards we’ve all experienced in recent times.’
A decade ago, about 128,000 people received three days’ worth of emergency food from Trussel Trust, the largest food rescue organisation in the UK.
After rising nearly every year since, 2,200,000 Brits are now relying on food banks.
Graham Duxbury, Groundwork’s UK Chief Executive, says poorer households have been feeling the squeeze for a decade.
‘As a charity dedicated to supporting people and communities in need, we have seen first-hand the impact that the cost of living crisis has had – and how this has compounded the inequalities exposed by the Covid pandemic,’ he says.
‘Many of the people and places we support were struggling before the crisis, but rising energy and food costs mean this hardship has intensified. It also means that many more people are having to make difficult choices to make ends meet.’
Dr Kanabar adds: ‘There is no question people are feeling the pinch. It isn’t only those on the lowest incomes who are feeling the cost of living squeeze, middle-income earners are increasingly voicing concern over being able to afford basic essentials and childcare, indeed childcare costs in the UK are among the highest across all OECD countries.’
So, when will the cost-of-living crisis end? ‘Nobody truly knows,’ he says.
‘And if, or when it does, given the recent historic decline in living standards and policy choices made, we won’t suddenly feel like we’re better off.’
So until then, Dee is going to keep doing what she has done for the last decade: do her best to pay her bills.
‘It’s not going to stop any time soon and if it did,’ Dee adds, ‘it would bring me greater peace of mind.’
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First appear at When will the cost-of-living crisis end?