Why is everything suddenly so expensive? 

Written by
Rebecca Goodman
Insurance expert
26 October 2021
4 min read
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Have you noticed that the price of everything seems to be creeping up? That your household budget doesn’t seem to stretch as far as it used to? 

You're not alone – 60% of people are already making cutbacks amid rising costs according to research by AJ Bell, the investment company. 

And it’s easy to see why: wholesale gas prices went up by 250% and Council Tax bills up by 4.4%. 

To many of us, it feels like added insult to injury in light of the last 18 months. With many people out of work, living on reduced incomes and feeling the impact of the end of the £20 universal credit uplift, many households are struggling to make ends meet. 

But why is this happening? And more importantly, is there anything that we can do about it? 

Is Brexit to blame? A shortage of delivery drivers? Or is it the economic after effects of the pandemic? 

How is the cost of living rising? 

Inflation is a key measure of rising prices and uses the consumer price index (CPI) to do it. The CPI looks at a basket of everyday goods and services to compare how the costs have changed over the time period. 

The most recent statistics show prices rose by 3.2% in the last year - and The Bank of England has predicted it could rise to 4% or above by December. This means prices are on average 3.2% higher than they were a year ago. So, if a pint of milk cost £1 a year ago, it’s now around £1.03. 

The Bank of England sets a target of 2% which is the rate it wants inflation to be at - yet it’s way off this at the moment. It may make the move to increase interest rates, currently at a historic low of 0.1%, to rebalance the books but there hasn’t been any confirmation around this yet. 

When we look at individual things, there are lots of examples. 

Petrol, which everyone has been talking about recently thanks to panic buying, has risen by 21% since the start of the year according to official figures. 

This means it’s now 24p per litre more to fill up and the average cost of a litre is now 139.46p. 

Energy prices are also soaring with the regulator Ofgem’s price cap going up again at the start of October. 

Anyone on a standard tariff with their energy provider, which is around 11 million households, will have seen their annual prices rise by an average of £139 to £1,277. 

Ofgem is expected to put the price cap up again in April when it reviews it next – which is likely to push costs up more. 

This is just an average rise, so many people may have seen higher or lower rises, and as soon as you start using more energy - which is inevitable in the winter - your prices will also creep upwards. 

Definitely a case of bad timing for households. 

Previously switching to a fixed-rate tariff would have helped but, due to wholesale energy prices soaring 250% this year, many suppliers have gone bust - and those that remain are not offering a deal cheap enough to beat the regulator’s price cap. 

What’s more, the average Band D council tax set by local authorities in England for 2021-22 will be £1,898, which is an increase of £81 or 4.4%. 

Housing has also seen a year of record growth. 

House prices have continued to go up, and in September were 7.4% more than a year ago, according to the latest Halifax housing index. 

This is largely due to the temporary stamp duty holiday, which was brought in last year and only recently ended, combined with our changing working lives and the fact many people no longer need to commute into a city-centre office so have moved to bigger, out-of-town houses instead. 

Shortages and bottlenecks, which many have blamed on the Brexit agreement, are also making everything a little more expensive 

What’s to blame for the price rises? 

But why have prices risen so much? With some - such as energy - underlying rises are to blame. 

Soaring costs of wholesale energy have some forced companies to pass some of the increase onto customers and caused some to go bust. 

The economic impact of the pandemic is also a major factor. 

Until recently the government had helped many businesses to keep on operating through tax breaks and schemes like furlough. Now they are coming to an end, prices have gone up. 

Shortages and bottlenecks, which many have blamed on the Brexit agreement, are also impacting prices. 

As supply outstrips demand – costs on everything such as petrol to food- this is making life a little more expensive. 

Staff shortages, from those driving goods across the country to those picking vegetables, are also pushing up prices. 

Whether it’s because of Brexit, or because of the pandemic - there are strong arguments on either side - this is still causing problems in production lines and adding to the rising cost of life. 

If you want to bring down your household spending, check out our guide to  making your food shop VAT free and our best fuel-saving hacks. 

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Don’t forget that while you may think that this article is brilliant, it is intended for information purposes only and should not be mistaken for financial advice or recommendations.