Why Is the Cost of Living So High in the UK? The Real Reasons Explained Simply

If you live in the UK right now or you’ve visited recently, you must have felt the heat. Inflation in the UK is rising at an all-time high, and wages seem to be lagging. The big question is, why is the cost of living higher in the UK?

First, What Does “Cost of Living” Actually Mean?

The cost of living is how much money you need to cover basic everyday expenses, like:

• Food
• Housing (rent or mortgage)
• Energy bills
• Transport
• Healthcare
• Education
• Childcare
• A little breathing room for life, not luxury, just living

When the cost of living is high, it means prices of things are increasing more than the income. And that’s what’s been happening in the UK.

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What Is Inflation?

Inflation means that prices increase over time.

When a loaf of bread costs £1.20 today instead of £1.10 last year, inflation is low. However, when prices jump quickly, there is inflation.

For instance, between 2022 and 2023, UK inflation hit levels not seen in decades, reaching 11%. That means, on average, prices were more than 11% higher than the year before.

The point is, your salary might not have grown that fast, and that is where the problem lies.

How Is Inflation Measured in the UK?

The UK uses CPI as a tool for measuring inflation. It is like a basket of consumer goods containing:

• Bread and milk
• Petrol
• Electricity
• Rent
• Mobile phone bills
• Train tickets

If these items cost £100 last year and £108 this year, inflation is 8%.

There’s also CPIH, which includes housing costs like rent, and many people feel this reflects real life better, especially renters.

How Do Interest Rates Help Lower Inflation?

The Bank of England aims for inflation to stay around 2%.

Why 2%? Because:

• Too low inflation can signal economic stagnation
• Too high inflation erodes spending power
• A moderate, steady rate helps businesses plan, wages keep pace, and savings hold value

So the Bank tries to signal stability, even when things are messy.

Their main tool used is interest rates, specifically, the base rate.

Here’s how that works:

When inflation shoots up, the Bank often raises the base rate.

That makes borrowing more expensive, such as mortgages, loans, and credit cards.

Why? Because when borrowing costs more, people spend less, save more, and in return, slow price rises.

It’s the main brake the Bank has.

How Did That Play Out?

After inflation surged even to over 10% at one point, the Bank of England raised interest rates quickly from near zero to over 5%.

That was one of the fastest ever in the UK.

It was uncomfortable because higher rates mean:

• Mortgage payments go up
• Loans cost more
• Businesses face higher financing costs

Hence, inflation remains above the Bank’s target. That’s why the need to reduce rates and encourage businesses to invest, creating jobs that will boost the economy, becomes more important.

Why Is Inflation So High in the UK?

No single reason explains it. It’s more like several problems hitting at once and refusing to leave.

1. Energy Prices Went Through the Roof

This is one of the biggest drivers. After the COVID-19 pandemic and Russia’s invasion of Ukraine, energy prices soared, and household energy bills increased.

At one point, average annual energy bills were set to exceed £3,500 without government intervention.

Even with price caps, people still felt the shock.

And when energy costs rise, everything else follows. Shops pay more to keep the lights on. Factories pay more to produce goods. Transport costs increase.

That extra cost? It lands on you.

2. Food Became More Expensive

Food inflation in the UK climbed sharply, hitting over 19% at its peak.

That’s not abstract. That’s real meals.

Why did food get so expensive?

• Higher energy costs for farming and transport
• Global supply disruptions
• Fertiliser shortages
• Extreme weather is affecting crops

Even basics like bread, eggs, and milk jumped in price. And while inflation has slowed, prices haven’t gone back down. They’ve just stopped rising as fast.

That’s an important distinction people often miss.

3. Housing Costs Are Crushing

Rent in many parts of the UK has risen 10–15% or more in just a couple of years. In cities like London, Manchester, and Bristol, competition is fierce.

Why?

• Not enough homes are being built
• Population growth
• Landlords are selling due to higher mortgage rates
• Buy-to-let becoming less attractive

At the same time, mortgage rates surged after years of being historically low.

People renewing fixed-rate mortgages suddenly have to make payments that are higher every month.

4. Interest Rates Went Up

To fight inflation, the Bank of England raised interest rates aggressively. Rates that sat near 0.1% jumped to over 5% within a short period. This helps slow inflation eventually.

But in the short term?

• Mortgages get more expensive
• Loans cost more
• Credit card debt grows faster

For households already stretched, it added another weight to the pile.

5. Wages Didn’t Keep Up

Yes, wages increased in the UK. But not enough. Not fast enough.

Real wages, which account for inflation, actually fell for long stretches. That means even if your payslip looked bigger, your money bought less.

6. Brexit Still Matters

Brexit

It’s safe to admit that Brexit has had economic implications.

Trade frictions, labour shortages, and new customs processes have all added cost layers.

Some goods cost more; some sectors struggle to fill roles.

Why It Feels Worse Than the Numbers Suggest

Here’s the thing.

Inflation is an average, but people don’t live in averages.

Low-income households spend more of their money on essentials like food and energy, the very things that rose the fastest.

So while official inflation might say “6%,” many households experienced something that felt closer to 15 or 20%.

That’s why the emotional side of this crisis matters.

Stress. Anxiety. Fatigue and more.

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Is the Situation Improving?

Technically, yes.

Inflation has been falling from its peak. Energy prices have stabilised. Interest rate rises have slowed; however, prices of items are high, and wages are still catching up. If you are worried about inflation, you are not alone, and prices will stabilise over time.