Households are seeing costs go up everywhere they turn with UK prices accelerating at the highest rate in decades.
Consumer prices rose by 5.5% in the 12 months to January, data by the Office for National Statistics shows.
It is the highest reading since March 1992 (when it stood at 7.1%), and up from 5.4% in December. The Bank of England has a 2% inflation target.
“It’s no wonder so many of us are struggling with rising prices, because inflation has hit 5.5%. To make matters worse, it’s set to accelerate in the coming months. The Bank of England expects it to be closer to 6% next month and 7.25% in April. By the time we get there, millions of people will be getting increasingly desperate,” Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said.
“Over time, we’ll see the impact spread increasingly to people who have tended to think of themselves as a relatively comfortable, as they start to find it increasingly difficult to make ends meet.”
The Bank of England forecast real household disposable incomes to fall by 2% in 2022 – the sharpest annual fall since records began in the late 1940s.
The UK is on course for the deepest living standards squeeze in six decades as more prices are set to rise soon.
Energy regulator Ofgem announced a 54% increase to its price cap from April. This means households across the UK will see their energy bills rise by around £700 a year, on average.
Nearly three million households were already behind on their energy bill payments even before the price rise last October.
The Resolution Foundation think-tank has predicted that five million households will be under “fuel stress”, twice the current number.
“On inflation, much of the high reading is being driven by energy and given the scheduled rise of the energy price cap in April, inflation may get worse before it gets better. Outside of energy, core inflation has again surprised to the upside and now sits at its highest level since 1992, Ambrose Crofton, global market strategist at J P Morgan Asset Management, said.
The government has sought to ease the cost-of-living crisis by offering most households £350 in support. However, critics have claimed this will do little to help those most affected.
Food, fuel and services such as restaurants and hotels are all becoming pricier.
Some 4.7 million adults experienced food insecurity in the last month, with 1 million saying they or someone in their household had to go a whole day without eating because they could not afford food, according to The Food Foundation.
“As costs rise, consumers are having to decide whether each purchase is a priority to them, if they need to try to find it cheaper, and whether it has to leave the basket,” Linda Ellett, head of consumer markets, retail and leisure, KPMG UK, said.
“With energy prices and National Insurance contributions set to rise in the near future, this scrutiny of spend will only increase for more people and more purchases.
“Whilst it’s a tough landscape for consumers, it’s also challenging for many businesses that sell to them, as they face their own inflationary pressures and decisions about whether and how to raise prices to cover costs, or to discount to try to hold market share and customer loyalty.”
Watch: Worst of rising food prices 'yet to come'
The ONS figures on inflation show “a dozen horrible price rises in the supermarket”, as Hargreaves Lansdown’s Coles puts it.
- Margarine and other vegetable fats 37.2%
- Oils and fats 15.9%
- Pasta and couscous 14.9%
- Jam, marmalade and honey 13.6%
- Yoghurt 12.4%
- Lamb and goat 12.3%
- Sauces and condiments 11.8%
- Low fat milk 8.5%
- Processed vegetables 8.2%
- Eggs 8%
- Mineral or spring water 8%
- Fresh or chilled fruit 7.3%
Petrol prices in the UK climbed to a record high, adding to the cost of living squeeze facing consumers and inflationary pressures.
Over the weekend, the cost of petrol rose to 148.02p a litre for the first time ever, while diesel reached a new high of 151.57p last Thursday. This follows the previous records of 147.72p and 151.10p respectively, in late November.
The RAC said the price of filling a 55-litre family car was now an "eye-watering" £81.41.
London’s Tube and bus prices will go up around 5% on 1 March in yet another blow to families already feeling the cost of living squeeze.
The average 4.8% hike is the biggest annual increase in Transport for London fares in a decade, with single Tube fares using Oyster or contactless tickets increasing by 10p in zone 1 and between 10p and 30p across the rest of the underground’s network.
Those who use the train will also feel the bite of inflation, with the price of train travel set to jump 3.8% in March – the biggest increase in a decade.
Many UK mobile networks and broadband providers are preparing to hike their prices from April.
BT (BT-A.L) will raise broadband and telephone prices by more than 9% in a further blow to millions of households.
The telecoms giant said the 9.3% increase means most of its 14 million customers will pay an extra £3.50 a month, or £42 annually, on average for phone and broadband bills from the end of March.
The major providers, including, EE, Plusnet and Vodafone are expected to follow as they all increase their broadband prices by the inflation rate plus 3.9%.
TalkTalk adds inflation and an additional 3.7%. The 9.1% rise amounts to around £2 extra each month.
Virgin Media was the first provider to announce a price rise, with customers set to see their plan rise by £4.70 a month or £56.40 a year from March 1.
Tax bills will also increase as national insurance and council tax rates are set to rise later this year.
“We understand the pressures people are facing with the cost of living. These are global challenges, but we have listened to people’s concerns and recently stepped in to provide millions of households with up to £350 to help with rising energy bills,” Chancellor Rishi Sunak said.
“We’re also helping people on the lowest incomes keep more of what they earn by cutting the Universal Credit taper rate, and freezing alcohol and fuel duties to keep costs down. In total we’re providing support with the cost of living worth over £20 billion across this financial year and next.”
Amid the biggest cost of living squeeze in decades, it is no surprise that around 2.5 million UK households missed payments in January.
Read more: How to budget for price rises
According to the latest findings from Which?’s consumer insight tracker, an estimated 2.5 million households missed or defaulted on at least one mortgage, rent, loan, credit card or bill in January 2022. This marks a significant increase on December 2021, when 1.7 million households were estimated to have defaulted on or missed a payment.
Inflation, the rate at which prices are rising, is expected to peak at 7.25% in April, with the Bank of England warning that the rising cost of living is going to carry on into 2023.
“Whether inflation ultimately falls away, it’s here today and it’s here to stay for the foreseeable future. As for savers, the average Cash ISA is currently paying just 0.34% in interest, so many people will naturally find themselves turning to the stock market to help fend off inflation,” Laith Khalaf, head of investment analysis at AJ Bell, said.
“That certainly makes a lot of sense, because companies at least have the opportunity to pass price rises onto consumers. In fact, that’s largely what causes inflation, as measured by the Consumer Price Index. However, investors need to play a long game when using the stock market to beat inflation. Over the course of the year, there is absolutely no guarantee that an investment in the stock market will beat inflation. But in the long run, investing in stocks is one of the key defences savers have against rising prices.”
This record level of inflation also means that savers have not been able to keep pace.
“It’s increasingly difficult to stomach the fact that inflation is running further and further ahead, as banks fail to pass interest rate rises on,” Coles said.
According to Moneyfacts, the average rates on ISAs have not moved since December, while the average easy access savings account is up by 0.01 percentage points to 0.21% and the average notice account has actually fallen 0.01 percentage point to 0.53%.
“If you’re making 0.01% on your savings with a typical high street easy access account, and inflation runs at an average of 5% for the next 12 months, someone with £10,000 of savings would lose £499 of the spending power of their money. If you switched to the most competitive easy access account, paying 0.73%, you could hold onto an extra £72 of your spending power,” she added.
Meanwhile, the only thing that seems to be able to avoid inflation are wages.
Incomes in Britain saw their biggest squeeze since 2014 in the three months to December as UK wage growth slowed.
“While wages are also rising – with average pay (including bonuses) up 4.3% in the final quarter of 2021 – earnings rises are lagging inflation and on the near horizon households have higher taxes in the form of National Insurance increases to contend with too,” Jason Hollands, managing director at Bestinvest, said.
“The combination of rising prices, higher taxes, rising borrowing costs and lagging wage growth are going to squeeze many household finances over the coming months.
According to the latest data from the Office for National Statistics (ONS), wage growth came in at 3.6%, down from a previous 3.8%, adding further pressure on incomes amid concerns over a cost-of-living squeeze.
“Inflation continued to tick up at the start of the year, putting ever more pressure on family budgets,” Jack Leslie, senior economist at the Resolution Foundation, said.
“But just as it’s unclear the extent to which wages will respond to these price pressures, there’s also uncertainty over the level at which consumer inflation will peak as factory-gate inflation continues to rise too,” he added.
“Job figures remain positive but are not enough to offset the squeeze on real household incomes. With inflation exceeding wage growth, real household income will probably fall by 2.5% this year,” Willem Sels, global CIO, HSBC Private Banking and Wealth, said.
Government benefits are set to rise by 3.1% in April when inflation is expected to peak at 7.25%. This means that two million households face a real-terms cut of around £570 per year in social security support.
Watch: How to save money on a low income