Working families have suffered a major financial squeeze after five years of soaring prices, with new analysis suggesting typical household incomes are around £2,900 lower than they otherwise would have been.
Analysis from the Resolution Foundation found typical non-pensioner household incomes would have been £2,900 higher in 2026-27 without the cost-of-living crisis. Families have faced repeated blows since inflation began climbing above the Bank of England's 2% target in 2021.
Prices nearly 30% higher than five years ago
Prices are now nearly 30% higher than five years ago, with the think-tank calculating Britain has experienced the equivalent of 13 years of "normal" inflation in just five years. The squeeze began as the world emerged from the Covid pandemic, when disrupted supply chains struggled to cope with renewed demand.
Russia's full-scale invasion of Ukraine then sent energy and other costs soaring, helping push UK inflation to a peak of 11.1% in 2022. Households are now being hit by another energy shock linked to the war with Iran, which has pushed up oil and gas prices and added more pressure to family budgets.
Poorest families hit hardest
The impact has been particularly painful for poorer families because essentials such as food and energy make up a greater share of their spending. Households cut their gas and electricity consumption by 13% across 2022 and 2023, according to the Resolution Foundation, with the biggest reductions recorded in the poorest neighbourhoods.
Despite using less energy, families were still spending 57% more on it in real terms at the height of the crisis than before the pandemic. Financial problems have also continued long after the original inflation surge.
Energy price cap set to rise again
Around 18% of households in the poorer half of the population were behind on utility and household bills in March this year, compared with one in ten in September 2020. Families now face another difficult winter as pressure on household budgets continues.
The energy price cap rose 4% in October, while Cornwall Insight has forecast another 16% increase in January. Mortgage borrowers are also feeling the pressure, with the average five-year fixed mortgage rate reaching 6% this week, its highest level for three years.
But the Resolution Foundation warned the state of the public finances means ministers have less room to provide the kind of widespread financial support offered during the previous energy crisis.
James Smith, chief economist at the Resolution Foundation, said: "Unfortunately, help is needed just when the public finances leave less room than ever to provide it. 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."
