High cost of living: Impact on households

The cost of living increased sharply in the UK during 2021 and 2022. The annual rate of inflation peaked at 11.1% in October 2022, a 41-year high, before subsequently easing. In May 2024, inflation fell to 2.0% (the Bank of England’s target) for the first time since July 2021.

Even though inflation is no longer high, the cumulative effect of rising prices means households face a much higher cost of living than in 2021. Households that were struggling before the period of high inflation have been most severely affected.

People are still reporting higher cost of living

In October 2024, 53% of adults in Great Britain reported an increase in their cost of living compared with the previous month. Of those whose cost of living increased, 90% said it was because food shopping had increased in price, while 72% said it was because gas and electricity bills had increased in price.

Low-income households are most affected

Office for National Statistics (ONS) data shows that households with the lowest incomes experienced a higher-than-average inflation rate in 2023. This is because low-income households are more affected by high food and energy prices, which rose particularly quickly between 2021 and 2024.

Incomes fell in 2022/23

Median income before housing costs was £621 a week in 2022/23, a real-terms (inflation-adjusted) fall of £3 a week since 2021/22 and £10 a week since 2019/20. Median income for households with the lowest 10% of incomes fell by £9 from 2021/22 to £237 a week in 2022/23.

Material deprivation and food poverty have increased

Material deprivation, the proportion of working-age adults who cannot afford basic items, increased between 2019/20 and 2022/23, from 19.6% to 20.9%.

The percentage of people in food insecure households rose from 7% in 2021/22 to 11% in 2022/23. In 2022/23, 2.3 million people (3%) had used a foodbank within the previous 12 months.

Trussell, a food bank charity formerly called the Trussell Trust, reported that between April and September 2024 they provided 1.4 million emergency food parcels, 4% less than the same period in 2023, but 69% more than the same period on 2019.

Some households have low financial resilience

In October 2024, 20% of adults in Great Britain said they had to borrow more money or use more credit than usual in the last month, compared to a year ago. 24% of adults told the ONS they would not be able to afford an unexpected but necessary expense of £850.

According to the Financial Conduct Authority, 14% of adults described keeping up with bills and credit commitments as a heavy burden in January 2024, and 11% had fallen behind or missed a payment in the previous six months. This was lower than in January 2023, when 21% described keeping up with bill and credit payments as a heavy burden and 12% had fallen behind or missed a payment.

Interest rate rises are affecting mortgage holders

In response to high inflation, the Bank of England’s Monetary Policy Committee raised interest rates in 2021 to 2023. This meant higher mortgage rates.

The Bank of England estimates that, as of November 2024, 2.7 million households are still paying less than 3% on their mortgage interest rate and face an increase when they remortgage.

The Institute for Fiscal Studies think tank estimated that interest rate increases between December 2021 and December 2023 are likely to have caused 320,000 more people with mortgages to be in relative poverty after housing costs.