Economics affects your daily life, but it is often explained in confusing language that makes it feel harder than it really is. This page breaks down common economic terms in plain English, so if you have heard a word like inflation, recession, GDP or interest rates but never fully understood it, you can find a simple explanation here.
These explainers are short, clear, and focused on real life. No complicated graphs, no unnecessary jargon, just the core idea and why it matters.
The basics you hear all the time:
Inflation
Inflation means prices rise over time. When inflation is high, your money buys less than it used to, so things like food, rent and bills feel more expensive.
Cost of Living Crisis
This is when everyday essentials become unaffordable for many people, usually because prices rise faster than wages and benefits. It is basically a squeeze on normal households.
Interest Rates
Interest rates are the cost of borrowing money. When interest rates rise, mortgages, loans and credit cards usually get more expensive, and people have less money to spend.
Recession
A recession is when the economy is doing badly for a sustained period. Businesses make less money, unemployment can rise, and people often feel less secure financially.
GDP
GDP stands for Gross Domestic Product. It is the total value of goods and services produced in a country. It is often used as a measure of how well the economy is doing, but it does not tell you how money is shared or whether people’s lives are improving.
Work, wages and living standards
Wages
Wages are what you earn from work. When wages rise slower than inflation, you are effectively worse off even if you earn the same amount as before.
Real wages
Real wages mean wages adjusted for inflation. If your wage rises by 3 percent but prices rise by 6 percent, your real wage has fallen.
Minimum wage
The minimum wage is the legal lowest pay per hour. It sets a floor under wages, but whether it provides a decent standard of living depends on prices and rent.
Unemployment
Unemployment is when someone wants a job and is actively looking but cannot find one. High unemployment usually means the economy is weaker and people have less bargaining power.
Productivity
Productivity means how much output is produced per hour of work. It matters because productivity growth is a key driver of higher wages and better living standards in the long run.
Inequality and society
Inequality
Inequality is the gap between people in income, wealth, opportunities, or living standards. High inequality can shape everything from education access to health to life chances.
Poverty
Poverty means not having enough resources to meet basic needs. In the UK, this often includes being unable to afford essentials like heating, food, transport, and stable housing.
Social mobility
Social mobility is how easy it is to move up in life, for example from a low income background into a higher income career. If social mobility is low, your background matters more than your talent.
Deprived areas
Deprived areas are places where people face multiple disadvantages like low incomes, fewer jobs, poorer health outcomes, and underfunded public services.
Inequality and society
Inequality
Inequality is the gap between people in income, wealth, opportunities, or living standards. High inequality can shape everything from education access to health to life chances.
Poverty
Poverty means not having enough resources to meet basic needs. In the UK, this often includes being unable to afford essentials like heating, food, transport, and stable housing.
Social mobility
Social mobility is how easy it is to move up in life, for example from a low income background into a higher income career. If social mobility is low, your background matters more than your talent.
Deprived areas
Deprived areas are places where people face multiple disadvantages like low incomes, fewer jobs, poorer health outcomes, and underfunded public services.
Government, taxes and public spending
Tax
Tax is money the government collects to fund public services like healthcare, schools, policing and welfare. Different taxes affect people differently depending on income and spending.
National debt
National debt is how much money the government owes overall. It is not automatically a crisis, but it matters depending on interest rates, growth, and how the money is used.
Budget deficit
A deficit happens when the government spends more than it collects in tax in a year. It is not always bad, especially during recessions when the government may spend to support the economy.
Benefits
Benefits are payments to support people who are unemployed, sick, disabled, or on low incomes. They act as a safety net but are often debated politically.
Key “economics words” people hear online
Supply and demand
Supply is how much of something is available, and demand is how much people want it. Prices usually rise when demand is high and supply is low, like when rent increases in popular cities.
Market
A market is simply where buyers and sellers interact, like the housing market or the job market. Prices and wages are often shaped by market forces.
Monopoly
A monopoly is when one company dominates the market. This can lead to higher prices and less choice because competition is low.
Externality
An externality is a side effect of an action that affects other people. For example, pollution is a negative externality because it harms others but is not always reflected in the price.
Human capital
Human capital means skills and knowledge that make people more productive in work. Education and training increase human capital.