Sign In

2022 in review – the year the cost-of-living crisis hit home

Government, businesses and consumers struggle to find ways to cope with the effects of rising inflation
2022 In Review 2 - the cost-of-living crisis

It’s almost impos­si­ble to look back on 2022 with­out the expres­sion ’the cost-of-liv­ing cri­sis’ spring­ing to mind. Com­ing into the year, many busi­ness­es – as well as the econ­o­my at large – appeared to be on the road to recov­ery with the worst of the Covid pan­dem­ic behind us. But a com­bi­na­tion of fac­tors, both domes­tic and inter­na­tion­al, have derailed much of the ear­ly opti­mism. 

Russia’s inva­sion of Ukraine in Feb­ru­ary exac­er­bat­ed a list of exist­ing prob­lems for busi­ness­es across Europe. A lack of through-routes and a redi­rec­tion of resources fur­ther dis­rupt­ed sup­ply chains. The glob­al semi­con­duc­tor short­age wors­ened as the invaders stopped export­ing cru­cial mate­ri­als. And sanc­tions meant los­ing out on Russ­ian oil and gas, which is a cat­a­stro­phe dur­ing an ener­gy cri­sis.

Sup­ply chain issues and soar­ing fuel prices hit house­holds where it hurts: the essen­tials. Accord­ing to the Office for Nation­al Sta­tis­tics, as of August 2022, 91% of Britons said their cost of liv­ing had gone up over the past month. Anoth­er sur­vey showed that 60% were spend­ing less on non-essen­tials, with 44% cut­ting back on food shop­ping and 52% try­ing to use less ener­gy in their homes. Ofgem research shows that the month­ly aver­age elec­tric­i­ty price in March this year was £263.79 per kilo­watt hour, up from just £57.18 in March 2021.

When house­holds are hurt­ing, they often look to gov­ern­ments to help them. Unfor­tu­nate­ly, after a year plagued by polit­i­cal tur­moil, a recent report by the OECD stat­ed that moves by the UK gov­ern­ment to help with ener­gy bills may make the cost-of-liv­ing cri­sis worse. Its fore­cast in Novem­ber was that the UK econ­o­my is set to deliv­er the worst per­for­mance of all G7 coun­tries, say­ing “the untar­get­ed Ener­gy Price Guar­an­tee announced in Sep­tem­ber 2022 by the gov­ern­ment will increase pres­sure on already high infla­tion in the short term.” 

How consumers are responding to the cost-of-living crisis

Britons have tak­en mat­ters into their own hands. As well as cut­ting back on spend­ing, an Office for Nation­al Sta­tis­tics study found that 44% were reduc­ing the num­ber of non-essen­tial jour­neys they took in their vehi­cle, with 18% mak­ing ener­gy-effi­cien­cy improve­ments to their homes. These are deci­sions which bode well for the plan­et, if not for the nation’s purse.

59% of UK adults say the cost-of-liv­ing cri­sis has harmed their men­tal health, leav­ing many feel­ing anx­ious, depressed or hope­less

Many are also dip­ping into their sav­ings and even tak­ing out loans, with the same study find­ing that 15% were using cred­it more than usu­al. Not only will cut­ting spend­ing have an adverse effect on the wider econ­o­my, but bor­row­ing mon­ey and wor­ry­ing about how to afford heat­ing, food, trans­port and cloth­ing is hav­ing a severe impact on con­sumers’ well­be­ing. A sur­vey run by the Mon­ey and Men­tal Health Pol­i­cy Insti­tute this year found that 59% of UK adults say the cost-of-liv­ing cri­sis has harmed their men­tal health, leav­ing many feel­ing anx­ious, depressed or hope­less. Some 21% say they have felt “unable to cope” with the ris­ing cost of liv­ing.

How business is responding

If con­sumers are strug­gling, so too are employ­ees. Busi­ness own­ers have had to con­sid­er how to retain and sup­port staff at a time when belts are tight­en­ing for every­one. 

Some organ­i­sa­tions have opt­ed to offer one-off cost-of-liv­ing bonus­es or vouch­ers for par­tic­u­lar high street shops. Oth­ers are con­sid­er­ing pay ris­es for staff, as skills short­ages con­tin­ue to wor­ry busi­ness lead­ers. Such finan­cial mea­sures, how­ev­er, are not pos­si­ble for every organ­i­sa­tion, par­tic­u­lar­ly those which are strug­gling. More­over, back in June, then deputy prime min­is­ter Dominic Raab argued that con­stant­ly increas­ing pay was one of the fac­tors dri­ving up infla­tion.

Infla­tion is also hav­ing an impact on busi­ness itself. As organ­i­sa­tions across the coun­try cal­cu­late their bud­gets for 2023, there is a great deal to think about. Busi­ness­es must con­sid­er how to stay com­pet­i­tive in an increas­ing­ly dif­fi­cult mar­ket, how to cre­ate more robust sup­ply chains, whether to keep offices and, if they do, how to heat and light them, as well as how to hang on to cru­cial staff in the midst of a tal­ent short­age. All of this will require mon­ey – and ris­ing infla­tion means that cuts will need to be made some­where.