Why is London So Expensive?

May 10, 2023
Why Is London So Expensive

London, a city known for its rich history, cultural diversity, and economic significance, also holds the distinction of being one of the most expensive cities in the world. According to a study by mobility group ECA, London ranks 4th on the list of most expensive cities globally. Several factors contribute to this high cost of living, encompassing everything from everyday essentials to housing and energy prices. Here’s an in-depth look at why London is so expensive.

Cost of Living

The cost of living in London is significantly influenced by various factors. ECA’s study analyzes a ‘cost of living basket,’ which includes items such as a cup of coffee, tomatoes, cooking oil, rent, and petrol. The cost of these everyday items has been impacted by global events, such as the war in Ukraine, which has caused supply shortages and fuel price increases .


The annual rate of inflation in the UK reached 11.1% in October 2022, a 41-year high, before easing slightly and then rising again to 10.4% in February 2023. High inflation affects the affordability of goods and services for households, with significant increases in consumer goods costs driven by strong demand and supply chain bottlenecks. Food prices, for example, were 18% higher in February 2023 compared to the previous year, the highest increase in 45 years .

Energy Prices

Energy prices are another crucial driver of inflation. From February 2022 to February 2023, domestic gas prices increased by 129%, and domestic electricity prices by 67%. These hikes are largely due to the record-level gas prices following Russia’s invasion of Ukraine and the subsequent cuts in Russian supply .

Financial Hub

London is the financial center of Europe, ranked 3rd worldwide in the 33rd Global Financial Centres Index by think tank Z/Yen, behind only New York and San Francisco. No other European city made the top ten. London’s financial markets, deep worker pool, strong legal oversight, and efficient transport system contribute to its status as a leading financial hub, attracting a significant amount of high-paying jobs .

Booming Fintech Scene

London’s fintech scene is booming, making it the best-ranked European center in terms of future prospects. This financial prosperity means many residents can afford luxury living, driving up the overall cost of living in the city.

Housing Market

The housing market in London is another major factor contributing to the city’s high costs. Domestic buyers compete with international buyers, who are drawn to London for its relative ease of purchasing and ownership. On average, international buyers purchase around 30% – 40% of homes in London. This strong demand from abroad makes London’s housing market somewhat insulated from domestic economic fluctuations, but it also drives up prices for everyone living and working in the city .

Rent Increases

According to ECA data, London rents have increased by 20%, a significant rise compared to other expensive cities like New York, where rents increased by 12% over the same period .

Geographic Factors

The UK being an island nation means that most goods need to be imported, making the country highly vulnerable to supply chain bottlenecks. This issue has been exacerbated by the disruptions seen since the Covid-19 pandemic, impacting the availability and cost of goods from China and Europe .


London’s high cost of living is a result of various interlinked factors. Its status as a global financial hub attracts high-paying jobs, contributing to the overall affluence and demand in the city. Meanwhile, the housing market is driven by both domestic and international buyers, pushing property prices and rents upwards. Additionally, global events and supply chain issues significantly affect the prices of everyday goods and energy. All these elements combined make London a relatively very expensive city to live in.

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