The Cost of Living Crisis - What challenges lie ahead in 2023

6 February 2023

What lies ahead in 2023 in terms of the Cost of Living Crisis? What challenges do we all face?

What challenges lie ahead in 2023? What support are consumers asking for? How can firms identify those in need of help?

Data On Demand has examined the circumstances around the present Cost of Living Crisis and how it affects consumers in the UK.

I’m sure we’re all tired of reading articles which point out the massive problems a huge section of the population is facing right now.

However, the difficulty of addressing the Cost of Living Crisis and looking after those in most need remains.

Now we are back into our everyday routine after the Christmas holidays, it is back to business as usual.

Firms will likely have a renewed focus on consumer vulnerability strategies, particularly as the FCA’s Consumer Duty deadline is looming.  

The challenges facing firms in 2023 on how best to support their customers will unfortunately be no less challenging than the ones they faced in 2022.

However, there is help at hand to enable you to better serve your customers.

Impact On Consumers

2022 saw a sustained period of volatility and financial stress for UK Consumers and this will continue into 2023. 

Christmas was a much-needed respite for many people, allowing them to spend quality time with family and take a break from their worries, if only for a brief moment.

Unfortunately, Christmas can add an extra unwanted burden with costly purchases and increased spending, and for some, unaffordable borrowing.

In a poll by the BBC over one third of the respondents who used credit to help get through the holiday season said they were not confident about their ability to repay.

Energy prices were a significant challenge across 2022 with the war in Ukraine leading to prices increasing drastically.

This meant some tough decisions for those with little or no disposable income who struggled with the increased costs to heat their homes last year and continue to find it difficult throughout the winter.

Research by the abrdn Financial Fairness Trust suggested as many as 75% of UK households had reduced their usage to avoid cost and Ofgem also condemned energy suppliers for failing vulnerable customers.

With Domestic energy prices due to rise again in April these issues look set to continue into 2023.

The Cost of Living Crisis is having an impact on people from all walks of life in the UK, not just those who would be traditionally classified as vulnerable.

2022 saw government and regulatory support such as furlough and payment holidays drop away as prices began to soar. This has led to a series of aftershocks. Some people who have historically been financially stable have had to use savings to cover everyday expenses as their disposable income has reduced, or disappeared completely, due to the rising costs of essential items.

Data from the Bank of England’s Money and Credit – December 2022 report shows annual growth rate for all consumer credit increased from 7.0% in November to 7.2% in December.

The annual growth rate of credit card borrowing rose from 12.2% in November to 12.4% in December, while the annual growth rate of other forms of consumer credit increased from 4.8% in November to 5.0% in December.

Consumers borrowed an additional £0.5 billion in consumer credit, on net, compared with £1.5 billion borrowed in November. Credit card repayments of £0.5bn were more than offset by £1.0 billion of borrowing through other forms of consumer credit, including Buy Now Pay Later services as consumers look to alternative means to spread payments to support their living costs.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to December 2022, down from 9.3% in November – meaning consumers will continue to need help as prices and interest rates continue to increase.

The decision on the 2nd of February 2023 means that it is now the tenth consecutive time that the Bank of England has increased interest rates, with the base rate at just 0.1% just over a year ago. The last announcement back in December 2022 saw the Bank decide to raise the base level to 3.5 per cent, but this has now hiked again by 0.5 percent to 4 percent – which is now a record 14-year high.

When interest rates rise, about 1.6 million people on tracker and variable rate deals usually see an immediate increase in their monthly payments.

The increase in the Bank rate from 3.5% to 4% means those on a typical tracker mortgage will pay about £49 more a month. Those on standard variable rate mortgages face a £31 jump.

This comes on top of increases following the previous recent rate rises. Compared with pre-December 2021, average tracker mortgage customers will be paying about £382 more a month, and variable mortgage holders about £240 more.

Three-quarters of mortgage customers hold a fixed-rate mortgage. Their monthly payments may not change immediately, but house buyers – or anyone seeking to remortgage, estimated to be 1.8 million people this year – will have to pay a lot more now than if they had taken out the same mortgage a year or more ago.

Impact on Firms Serving Consumers

Many firms have already started mapping out and executing their Vulnerability Strategies to overcome the obstacles laid out. They are creating policies, procedures, and partners to ensure their success.

For many, these policies and procedures will be aligned with regulatory guidelines from the FCA’s updated Consumer Duty, with deadlines for implementation imminent.

This topic has been thoroughly discussed; however, here is a compilation of the primary themes and resolutions we have been discussing with clients and partners:

  • Don’t rely on the Status Quo –The impact on consumers, and therefore on firms, is being driven by socio-economic volatility. Volatility brings increased change and increased risk. To understand how that is impacting your customers you need to look at alternative sources of information to support your BAU process. We have seen regulators including Ogem and more recently the Financial Conduct Authority be very clear they expect firms to look at alternative data options to better inform their decisions.


  • Be Pro-Active – One constant to all our conversations, which is likely driven by the regulatory focus, is the need to be pro-active in identifying and supporting customers at the point they need help. The vast majority of consumers will not feel able, or comfortable, to speak to you directly about their situations. Be proactive and utilise communication from customers and proactively engage them to help them feel secure in sharing their dilemmas; this should be a priority – but, also utilise third-party data sources to enable you to highlight where individuals are struggling financially and where you can make a decision to take action.


  • Focus on Outcomes – There is no ‘one-size-fits-all approach’ to supporting customers or satisfying regulatory requirements when it comes to vulnerability. Identify areas for improvement and reach out to new and existing partners to learn more about the products they have developed as response to the increased consumer vulnerability. Innovative companies will always be working on new solutions that will enable you to create better outcomes.


2023 is sure to be a difficult year with formidable obstacles ahead. Provided businesses are willing to ask for and accept help in the same way they would ask their customers to, they will overcome these difficulties.

Simon Gregory, Sales Director – Data on Demand

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