Inflation Down, But Costs Still Rising: What This Means for UK Households

Today’s announcement that the UK’s inflation rate has fallen to 2% for the first time in almost three years is undeniably positive news. It signals a move towards economic stability and suggests that some of the measures taken to curb inflation are starting to take effect. However, while the rate at which prices are rising has slowed, prices themselves are still increasing. This distinction is crucial, as the cost of living remains a significant burden for millions of people.

Breaking Down the Numbers

While inflation measures the rate at which prices increase, a lower inflation rate does not imply that costs are decreasing. For example, the average monthly mortgage payment in London has risen from £1,450 in 2020 to about £1,887 in 2024, an increase of approximately 30%. Similarly, average rent in the private sector has surged from £1,668 per month in 2020 to approximately £1,848 in 2024, reflecting a 10.8% increase.

Energy bills have also seen significant increases. In 2020, the average annual energy bill for a typical household in London was around £1,042. By 2024, this figure has climbed to about £1,300, marking a 24.7% increase.

Moreover, household debt has become a significant pressure point. The average household in the UK now owes £65,529 in personal debt, with unsecured consumer debt, including credit cards and loans, rising sharply. The total personal debt in the UK increased by £40 billion in the past year, reaching £1.84 trillion . This escalating debt level adds further strain to household finances, making it even more challenging to manage rising living costs.

The Reality for Households

Despite the reduction in inflation, the reality is that many households are still grappling with financial difficulties. The drop in inflation means prices are rising more slowly, but they are still rising. Food prices are 25% higher than they were in early 2022, with 44% of adults reported buying less food due to higher prices in January 2024, and energy bills remain significantly elevated. This ongoing increase in living costs continues to strain household budgets, particularly for those on lower incomes.

What Needs to Happen Next

With the general election on July 4th, it is imperative for the incoming government to prioritise addressing the cost of living crisis. The reduction in inflation is a step in the right direction, but it is not a solution to the broader issue of rising living costs. The incoming government, regardless of party, must take decisive action to provide relief and support to millions of individuals and families still grappling with financial hardship. Only through comprehensive and compassionate economic policies can we hope to see a real improvement in the quality of life for everyone in the UK.