A:

According to Numbeo, the largest collection of cost of living data for destinations around the world, consumer prices were 29.51% higher in the United Kingdom than the United States as of August 2014. However, comparing the cost of living between the two countries is not so straightforward.

Measuring Cost of Living

When economists or statisticians measure the "cost of living" for a given country or region, they review the amount consumers need to spend to reach a certain average standard lifestyle. Put another way, the cost of living measures how much food, shelter, clothing, healthcare, education, fuel, etc. can be bought with one unit of currency. To account for differences in purchasing power between the U.S. dollar and the U.K. pound sterling, it is useful to express prices for both countries in terms of dollars.

For instance, the average U.K. driver spends £1.37 per liter of gasoline, which is the equivalent of \$2.27 as of August 2014. By comparison, the average U.S. driver pays \$0.96 for the same liter of gasoline.

Prices in the United States and the United Kingdom

Break down the average prices for various goods and services in the United States and the United Kingdom and you see that British consumers face a higher cost of living in almost every area. They pay 15% more for rent; 12% more for groceries; 50% more for restaurant meals; 52% more for utilities; and 135% more for gasoline, based on figures provided by Numbeo.

Comparing costs for larger items, such as education and healthcare, is more difficult. This is because most consumers do not directly bear these costs in full. Government-provided services are indirectly paid for through taxation, and private services are often subsidized.

According to The Economist, the National Health Service in the United Kingdom spends far less per person than the American healthcare system. While the average cost per person is less in the United Kingdom, the net cost to the average consumer/taxpayer is more difficult to quantify.

Other Problems

One issue with looking at national cost of living averages is that prices can vary significantly within a given country. As an example, there is a larger difference in the average cost of living between Chicago and New York City than between New York City and London. Part of this can be explained by size differences. The United States is more than 40 times the size of the United Kingdom (3,794,000 versus 94,000 square miles) and has approximately five times the population.

Additionally, cost of living averages do not address the quality of the goods or services available. It could very well be that shoes cost 25% more in one country than in another, yet last 50% longer. Perhaps food prices are the same between two countries, but on average the food in Country A tastes better and is healthier to consume than food in Country B. Nevertheless, the data suggest it is relatively less expensive to live in the United States than in the United Kingdom.

RELATED FAQS
1. ### In economics, what is an index number?

Read about the role of an index number in economics and how index numbers can be applied to all kinds of data, such as inflation ... Read Answer >>
2. ### What does the current cost of living compare to 20 years ago?

Find out how inflation has affected the dollar since 1994, and how the cost of living has changed above and beyond what can ... Read Answer >>
Related Articles
1. Insights

### Standard of Living Vs. Quality of Life

What is the difference between a standard of living and quality of life? Find out in this breakdown.
2. Insights

### How Moving Can Affect Your Finances

Here are the factors you need to look at to determine whether moving to a new area will leave you with more money on a regular basis.
3. Insights

### What's Impact of Brexit on Apple Thus Far? (AAPL)

What are the after effects Brexit may have on Apple?
4. Insurance

### How Americans Spend Their Money

On the surface, Americans are spending most of their money on necessities such as transportation and shelter. But how much of that spending is pure excess?
5. Insurance

### How Do Your Finances Stack Up?

We look at the average consumer numbers, so you can get some perspective on how you spend your hard-earned dollars.
6. Personal Finance

### How Much Money Do You Need to Live in NYC?

Learn how much money you need to meet basic expenses in New York City as a student, as a professional and as an unemployed job seeker.
7. Personal Finance

### 5 U.S. Cities with High Paychecks and a Low Cost of Living

Consider these U.S. hubs where workers get paid competitive salaries while enjoying a high quality of life due to a low cost of living.
8. Investing

### The Top 10 Cities for Early Retirement

If you are looking to take an early retirement, find a place where it's easiest to significantly reduce your cost of living.
9. Retirement

### 2016’s Three Most Expensive U.S. Retirement Cities

Think twice before you decide to retire to New York, Honolulu or San Francisco. Talking to a financial planner can help you figure out what you can afford.
10. Retirement

### Retire in Peru With \$200,000 of Savings?

Peru has a very low cost of living, affordable healthcare and an excellent climate.
RELATED TERMS
1. ### Association Of British Insurers - ABI

A trade association comprised of insurance companies located ...
2. ### The City

The main financial district of London, and one of the world's ...
3. ### GBP

GBP is the abbreviation for the British pound sterling, the official ...
4. ### Brexodus

Brexodus refers to a potential spillover effect of Brexit whereby ...
5. ### Direct Cost

A direct cost is a price that can be completely attributed to ...
6. ### Service Sector

The service sector is the portion of the economy that produces ...
Hot Definitions
1. ### Inflation

Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
2. ### Discount Rate

Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
3. ### Economies of Scale

Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
4. ### Quick Ratio

The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
5. ### Leverage

Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
6. ### Financial Risk

Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...