Right now in the UK, utility bills and energy prices are going up at an unprecedented rate. I know this will affect the lives of many people. Therefore I have decided that I will be paying the utility bills for the rest of 2022 to one of our subscribers who signs up to the Rent2Rent Revolution.
Every person who attends the Rent to Rent Revolution (free 1 day Course) will be submitted into the raffle for all utility bills paid until the end of 2022! Sign up today for your chance to win! Get your free ticket here (£1 booking fee applies).
Energy prices have been going up fast in the UK and a lot of people have been asking themselves why this is happening. In this article, I will go through 3 reasons behind the rise in energy costs in the UK.
1. Currency printing
Inflation is hitting the UK hard in all areas of consumer spending and energy prices are no exception. This is a result of the huge amount of digital currency printing the Bank of England has engaged in since the 2008 recession. Of particular concern was the massive amount of money printing and government spending during the lockdowns.
When central banks print money no new value is created, rather it dilutes the value of the currency currently in circulation. The new money had to go somewhere. At first it went into assets pushing the prices of real estate, stocks and cryptocurrencies up. But inevitably, it has begun to impact the prices of consumer goods.
2. Price controls
In 2019, the government introduced an energy price cap to protect consumers. In April, this cap was raised substantially by 54%. This has had a big impact on many customers and even the money saving expert, Martin Lewis, says he is finding it hard to help people save money. The reality is there is simply no cheap energy suppliers to switch to.
The problem with price controls is that they prevent the market from reacting to new conditions. Capitalism provides the solution to rising prices. When the demand for a good or service is higher than the supply of said good or service, this incentivises new suppliers to enter the market, because prices go up. As new suppliers enter the market to benefit from the higher prices, supply goes up and therefore prices go down again. Artificial price controls prevent this market dynamic. This means that new suppliers are not incentivised to enter the market and prices do not correct downwards.
3. Ukraine conflict
This is the reason you are most likely to hear politicians talk about. Politicians hope that as they are not seen to be to blamed for the war, blaming the war for the increase in voters’ utility bills will make them seem less responsible. While the Russia-Ukraine conflict is far from the only reason for rising prices, it does certainly play a role.
Uncertainty about what Russia will do in response to sanctions, and western nations’ support for Ukraine, means that buyers are willing to pay more to secure energy. As alternatives are found and Russia’s intentions with regard to the sale of oil become clearer over time, the impact on the market should ease somewhat.
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