A typical family is £2,900 worse off this year because of the continuing cost of living crisis, a think tank has found. New analysis published by the Resolution Foundation discovered that the past five years of near-continuous cost of living pressures have caused real incomes to drop by almost 8%.
Three crises fuel inflation
The report assesses the toll of three crises – the aftermath of the Covid crisis, the invasion of Ukraine, and conflict in the Middle East – during which inflation peaked at 11.1%. It says energy has been at the “epicentre” of a price shock for households. Higher energy costs have bled into other prices, with food inflation peaking at nearly 20% in March 2023.
The pain felt from these price rises has not been shared equally, the think tank found. Inflation was steepest for essentials, which make up a larger share of poorer households’ spending. As a result, the rise in non-housing costs since before the pandemic has been around one-sixth bigger for the poorest tenth of households than for the richest tenth, the report concluded.
Impact on household incomes
Overall, it says that the real income of a typical working-age household this year is £2,900 a year lower than it would have been compared to a world in which inflation had stayed at 2% over the past five years.
James Smith, chief economist at the Resolution Foundation, said: “Having experienced 13 years’ worth of inflation over the past five, families across the country are struggling with the cost of living.
“Unfortunately, help is needed just when the public finances leave less room than ever to provide it.
“While the hit to incomes from rising prices has been felt right across the board, the hardship has not been equally shared. It is poorer families who have cut back hardest on heating and are falling behind fastest on essential bills, and conflict in the Middle East is set to keep energy prices high.”
Calls for targeted support
Looking ahead to this month’s Budget and beyond, he said: “The Government can’t borrow its way out of this, and repeating the expensive blanket support of 2022 isn’t an option. Any new help must be squarely targeted at the poorer families facing the greatest hardship – starting with their energy bills.”
Alex Beer, assistant director of strategy at the Nuffield Foundation, said: “Five years of unusually high inflation have had a substantial impact on household finances, with lower-income families facing the greatest pressure.
“By showing how rising energy and food prices have reduced living standards and made it harder for people to pay essential bills, the report provides timely and valuable evidence on the consequences of an extended costs of living crisis.”
TUC General Secretary Paul Nowak said: “Household budgets have been hammered by the consequences of Donald Trump’s and Vladimir Putin’s reckless warmongering.
“The government must use this month’s Budget to deliver the circuit breaker the Prime Minister has recognised the country needs.
“Working people shouldn’t be left to carry the cost while banks pocket billions from higher interest rates. After five years of profiting from global turmoil it’s time the banks paid their fair share and helped shield families from soaring bills.”
