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Cost of Living Crisis

Over the difficult months ahead, we’re supporting people at the sharp end of the cost of living crisis.

Support for Households

What is the cost of living crisis?

The ‘cost of living crisis’ refers to the fall in ‘real’ disposable incomes (that is, adjusted for inflation and after taxes and benefits) that the UK has experienced since late 2021. It is being caused predominantly by high inflation outstripping wage and benefit increases and has been further exacerbated by recent tax increases.

In early February, the government announced some measures to respond to high energy prices, a particular flashpoint of the crisis. At the spring statement, the former chancellor Rishi Sunak announced some more general policies to support squeezed household budgets.

A much larger package of household support for energy bills was announced by Sunak in late May. After accounting for these policies most lower income households will be more-or-less fully protected from the increase in inflation. But for many other households inflation is still expected to increase more quickly than post-tax and benefit incomes this year.

What is Inflation?

Inflation is calculated as the average change in the price of typical goods and services purchased by UK households over 12 months. This is tracked using the Consumer Price Index (CPI), calculated by the Office for National Statistics using a sample of 180,000 prices of 700 common consumer goods and services. The latest data has the current CPI at 10.1% in the 12 months to July 2022. The Bank of England aims to keep the CPI rate of inflation at 2% plus or minus 1% (i.e. between 1% and 3%) and adjusts interest rates to achieve this.