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The cost of living has been increasing across the UK since early 2021. The annual rate of inflation reached 9.9% in August 2022, close to a 30 year high, affecting the affordability of goods and services for households.

Consumer goods and energy prices pushing inflation higher

Consumer prices, as measured by the Consumer Prices Index (CPI), were 9.9% higher in August 2022 than a year before.

Increases in the costs of consumer goods, underpinned by strong demand from consumers and supply chain bottlenecks, have been one factor causing rising inflation.

Another important driver of inflation is energy prices, with household energy tariffs and petrol costs increasing. From August 2021 to August 2022, domestic gas prices increased by 96% and domestic electricity prices by 54%. Gas prices increased to record levels after Russia launched its full-scale invasion of Ukraine and continued to rise during much of 2022 due to cuts in Russian supply. Electricity prices are linked to gas prices and have followed a similar trend.

In February 2022 the regulator Ofgem announced the price cap would increase from 1 April 2022 by 54% to £1,971 for typical consumption across a year. On 26 August 2022 they announced that the cap would increase by a further 80% to £3,549 from 1 October 2022. However, on 8 September the Prime Minister announced a new Energy Price Guarantee would instead be introduced on 1 October. This would be set at £2,500, again for typical consumption across a year, and be in place for two years

As well as the humanitarian, military and political impact of Russia’s invasion of Ukraine, there are implications for the world economy. For the UK, a key economic effect of the conflict is higher energy prices. After rising following the invasion, gas prices on international markets have fallen steadily, while oil prices have remained high.

As a result, road fuel prices and household energy bills in the UK have increased. Energy bills for businesses have also increased and are expected to continue to rise. Details of new Government support measures for businesses are expected in the near future.

Russia and Ukraine are also large producers and exporters of agricultural products, such as wheat, and some metals. These products have become more expensive on international markets, leading to increases in food and materials prices in the UK.

Rising inflation around the world

Consumer price inflation has been rising in many countries since 2021. Pandemic-related supply shortages are a main factor. As the global economy recovers from its recession, there has been increased demand for products – especially consumer goods – and materials. The conflict in Ukraine is also leading to higher commodity prices, which is also pushing up inflation around the world.

In August 2022, the Eurostat reported the UK’s annual inflation rate of 9.9% was higher than in some comparable economies such as France (6.6%) and Germany (8.8%) as well as the Eurozone average (9.1%).

The Energy Price Guarantee means inflation is likely to be lower than expected

The Government’s Energy Price Guarantee (EPG) package caps energy bills, which means the inflation rate is likely to be lower than it would have been under Ofgem’s household energy price cap (which was due to be higher).

The Bank of England forecast inflation to peak at just under 11% in October 2022 and stay above 10% for a few months before starting to fall back. This forecast was made before the Chancellor’s fiscal statement on 23 September, and the subsequent reaction of the currency and bond markets.

Before the EPG was announced, in August 2022, the Bank of England expected inflation to reach 9.9% in Q3 2022 and to peak at 13.1% in Q4 2022. This is significantly higher than its May forecast: forecasters have been increasing their expectations of consumer price inflation since Russia’s invasion of Ukraine.

Government policies

The Government announced the Energy Price Guarantee (EPG) on 8 September, which will cap the unit of cost of energy. A household’s bill will continue to be influenced by how much energy they use, but a typical household will “save at least £1,000 a year (based on current prices from October)”.

The EPG might cost the Government around £31 billion in 2022/23, while a similar scheme for non-domestic users of energy (businesses, charities, public sector, etc) might cost a further £29 billion.  

Other Government support announced during 2022 includes:

  • £400 off energy bills for all households
  • £650 payments for households receiving means-tested benefits. Pensioners will get an additional £300 and people receiving disability payments an additional £150
  • a £150 council tax rebate for households in council tax band A toD
  • a 5p cut to fuel duty
  • an increase to the amount someone can earn before National Insurance Contributions (NICs) are charged

Impact on households

According to the Office for National Statistics, 87% of adults in Great Britain reported an increase in their cost of living in August-September 2022.

Low-income households spend a larger proportion than average on energy and food, so are more affected by price increases. Government support is not targeted to low-income households: the Energy Price Guarantee is broad-based, and makes up over half of total support for incomes in 2022/23, which means overall, total government support for household incomes in 2022/23 is evenly spread across incomes.

Food bank charities are reporting an increase in demand: in August 2020, nearly 90% of food banks in the Independent Food Aid Network reported an increase in demand since April, and 19% reported having to reduce their parcel size because of increasing demand and reduced donations.

Further reading

Read all Library briefings on the cost of living on our Research on increasing cost of living and inflation page.

Economic update: Much for the new Chancellor to consider
23 September 2022 | House of Commons Library

Domestic energy prices
21 September 2022 | House of Commons Library

September 2022 fiscal statement: A summary
23 September 2022 | House of Commons Library

Documents to download

All research on the cost of living

Commons Library publications on the rising cost of living in the UK, including cause of inflation, the effect on households, and Government support.

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