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