Rising cost of living and its impact on UK household

• Context
• The study
• Key findings
• Points to consider

Context

The cost of living has been increasing across the UK since early 2021. The annual rate of inflation reached a 41-year high of 11.1% in October 2022, before easing to 10.1% in January 2023. High inflation is problematic because it affects the affordability of the often-essential goods and services that households need.

The report is updated by the authors regularly and as such the details summarised here may not correspond to the edition of the report that is currently available via the weblink.

The study

The briefing provides an overview of recent inflation in the UK, particularly the rising prices of food, energy and fuel, including the role played by the invasion of Ukraine by Russia starting February 2022. It outlines what Government support is available to help with the cost of living as well as considering how rising prices, interest rates and other policies are affecting household budgets.

Key findings

The report is updated by the authors regularly and as such the details summarised here may not correspond to the edition of the report that is currently available via the weblink.

Inflation: The Consumer Prices Index (CPI) recorded prices at 10.1% higher in January 2023 than January 2022. This is partly due to increases in the costs of consumer goods, food and energy (gas, electricity and petrol) prices have also been increasing, with energy doing so sharply in 2022 following Russia’s invasion of Ukraine. Inflation has been rising in many countries around the world since 2021, with pandemic-related supply shortages, an increase in consumer demand following recession and the conflict in Ukraine as driving factors. UK inflation is expected to slow during 2023, partly as a result of steep increases in energy prices in 2022 falling out of the annual comparison.

Government support announced during 2022: The most notable support, announced on 8 September 2022, was a cap on the unit of cost of energy (the Energy Price Guarantee), which caps the unit of cost of energy. Other policies include: £400 off energy bills for all households; £650 payments for households receiving means-tested benefits; an additional £300 for pensioners and £150 for people receiving disability benefits; a £150 council tax rebate for households in bands A-D; a 5p cut to fuel duty; and an increase to the lower earnings threshold qualifying for National Insurance Contributions.

Impacts on households: Official statistics indicate that 92% of adults in Great Britain experienced an increase in their cost of living in November-December 2022. Real, post-tax household income is expected to fall by 4.3% in 2022-23. Because low-income households spend a larger proportion of their incomes on energy and food than average households, they are more greatly affected by price increases. Food bank charities are reporting an increase in demand. Increases in the base rate by the Bank of England, to 4.0% in January 2023 has led to higher household borrowing costs, especially mortgages.

Points to consider

• Methodological strengths/weaknesses: This is a narrative review and it is not clear how rigorous the approach to selecting literature has been. The briefing relies on official sources of data, which makes for a strong basis for a review. However, it takes only a partial view of the range of issues; for example, quantitative easing is not considered as a potential factor in rising inflation.
  • The forecasts the paper relies on in places are likely to contain some degree of error.
• Generalisability/ transferability: This research is mostly generalisable to the UK.
• Relevance: This report is relevant to those interested in the current cost of living situation, inflation, and government support policies.