Inflation hit a worrying 10.1% in September in the UK, after a brief period of respite where it fell below double digits in August.
What’s more, it has since peaked at a 40-year high of 11.1% in October, as the UK economy entered into a technical recession that could last for five consecutive quarters according to the Bank of England (BoE).
This is despite the fact that may believe inflation has peaked in the UK, as it may not fall back to the central bank’s target of 2% until some point in 2024. This making access to cash increasingly urgent in the UK, with services like probate loans allowing people to unlock cash holdings quickly and efficiently where appropriate.
But what exactly is behind the rising cost of living, and which factors are particularly pertinent to the UK?
The War in Ukraine
Perhaps the primary driver of inflation in the UK (and indeed, across the globe) is Russia’s invasion of Ukraine.
Russia officially invaded its neighbour in February, significantly disrupting the supply of gas and oil while sending wholesale energy prices soaring. This accelerated a trend that was already prevalent at the end of last year, with gas and electricity prices having increased by 96% and 54% respectively since September 2021.
The February invasion has contributed to marked and incremental inflation hikes since the first quarter of this year, with the cost of living first reaching double figures in the UK in July.
As we’ve touched on, inflation remained above 10% and reached 11.1% in September and October, with a brief respite in August (when it dipped slightly to 9.9%) appearing to be little more than a statistical anomaly for now.
What About the Fallout from Covid?
The impact of gas supply shortages has been compounded by rising demand, which increased exponentially as the world recovered from the coronavirus pandemic and its associated lockdowns.
What’s more, the economic fallout from the pandemic continues to impact the wider cost of living, with significant fragility remaining in sectors such hospitality, travel and tourism and entertainment.
Similarly, global supply chains remains disrupted and in a state of flux, causing incremental cost hikes that are being passed onto consumers in the form of price rises. This is why the cost of food and similar essentials is also increasing disproportionately alongside gas and oil, with this trend unlikely to change anytime soon.
This has also had the impact of driving up the cost of raw materials, compounding inflationary pressure and hitting consumers even harder.
The Last Word
The cost of living is being further compounded by global governments’ commitment to green energy, which incurs transitional costs while impacting directly on sectors such as agriculture and their ability to use fossil fuels to complete energy intensive processes.
Unlike some of the factors referenced above, this is an indirect trigger, albeit one that’s likely to last for longer than Russia’s invasion of Ukraine and the fallout from the coronavirus pandemic.
However, it’s the combined impact of these factors that have sent inflation spiralling in the UK and globally, and economists are predicting that 2023 will the cost of living remain disproportionately and worryingly high.
