Rising gas prices and other cost pressures have raised concerns that households face significant strain on their finances.
Business Secretary Kwasi Kwarteng told the BBC it could be “a very difficult winter”.
Here’s a look at the cost of living crisis and what households can do to take some of the pressure off:
– What happens to energy bills?
Soaring global gas prices dramatically increase the cost of energy.
The Ofgem regulator regularly sets an energy price cap, which acts as a “safety net” for customers on default tariffs and the cap will drop to Â£ 1,277 from 1 October for a typical user.
However, the cap is based on what has already happened in the underlying energy markets, so it is expected to rise again next April.
Consumer champion Martin Lewis has suggested that from April 1 the cap could rise to over Â£ 1,500 a year.
– What if my energy company goes bankrupt?
The Ofgem regulator will protect any customer credit balances and appoint a new supplier. The new contract could be significantly more expensive, given the current situation.
– Are we going to go back to a blackout situation of the 1970s?
Ministers said there was no risk of the lights going out this winter as energy supplies are secure despite rising costs.
– What about my supermarket shop?
Shoppers will start to notice shortages of food items such as poultry, pork and baked goods within days due to the impact of the crisis on the food supply, according to the Food and Drink Federation.
– What makes life difficult financially at the moment?
The cost of living has already increased. The consumer price index (CPI) measure of inflation hit a nine-year high in August. Experts had previously predicted that the 3.2% increase could accelerate to more than 4% by the end of the year.
Many households are also still trying to repair the financial damage caused by the coronavirus crisis. Some are in greater debt than they otherwise would have had, having taken payment holidays to tackle the immediate financial threat of the pandemic. According to figures from UK Finance, the average value of suspended mortgage payments per month was Â£ 755.
– What will happen in the near future?
A Â£ 20 per week increase in universal credit payments is expected to end on October 6 – with some 4.4 million households on universal credit, they are also expected to see their energy bills rise significantly in October.
– Anything else on the horizon?
In the longer term, a Â£ 12 billion tax hike is also on the horizon to help finance welfare reforms. A 1.25 percentage point increase in national insurance will be introduced from April 2022.
– So what can households do to try to offset the rising costs?
Shopping around and comparing energy offers is always important, although with so many prices on the rise it will likely be a much more difficult task than usual.
MoneySavingExpert.com has a cheap energy club that helps people find deals that suit their needs across the market.
People could try to come up with a fixed rate deal to make sure, or they could rely on price cap protection and hope for the better.
There are also various support programs such as winter fuel payments and the warm house rebate.
Ofgem has support information available at www.ofgem.gov.uk/energy-advice-households/find-schemes-grants-and-benefits-help-home-energy.
– Are there other ways for households to cut back and save money?
There may be ways to save small amounts of money that will add up over time. For example, aligning supermarket stores with times of the day when items are on sale, or making packed lunches rather than buying lunch outside.
In the aftermath of the mortgage price war of the past few months, homeowners could see if they could lower their monthly costs by changing their mortgage.
Several banks are also offering current account switch offers of over Â£ 100, which could also give household budgets a cash injection.
The government-backed MoneyHelper service offers budgeting guides at www.moneyhelper.org.uk/en/everyday-money/budgeting.