Five charts that explain the high cost of living in the UK
The UK is grappling with the rising cost of living, with inflation expected to climb further in the second half of the year due to the fallout from the US-Israel war on Iran. The annual rate of inflation in June was 2.8 percent, down from 3 percent in May, but prices are …
Intelligence analysis by Llama
The UK's inflation rate is driven by energy prices, services inflation, and slowing wage growth. The cost of living crisis is affecting low-income families, with 7.4 million unable to afford essential items this year.
Imagine you have a fixed amount of money to spend on things like food, housing, and transport. If prices keep going up, you'll have less money to spend on other things. This is what's happening in the UK, where prices are rising due to the war in the Middle East. It's especially hard for people who already don't have much money.
Analysis
Inflation in the UK: A Growing Concern
The UK's inflation rate has been steadily increasing over the past year, driven by a combination of factors including energy prices, services inflation, and slowing wage growth. The annual rate of inflation in June was 2.8 percent, down from 3 percent in May, but prices are still rising. The cost of living crisis is widespread, with 7.4 million low-income families unable to afford essential items this year.
Energy Prices: A Major Driver of Inflation
The closure of the Strait of Hormuz, a route for about one-fifth of the world's oil and liquefied natural gas (LNG) supplies, has pushed up the cost of petrol, transport, food, and other goods. Petrol prices in the UK have hit a three-and-a-half-year high, with the average price of a litre of petrol increasing from 1.32 pounds ($1.78) to 1.61 pounds ($2.17) between February 25 and August 11. Diesel prices have also risen, from 1.42 pounds ($1.92) to 1.81 pounds ($2.44) per litre.
The Impact on Low-Income Families
The cost of living crisis is having a disproportionate impact on low-income families, who are struggling to afford essential items. According to the Joseph Rowntree Foundation, a charity that conducts and funds research aimed at fighting poverty in the UK, 7.4 million low-income families are unable to afford essential items this year. This is the highest number since 2021, when the charity's cost-of-living tracker began.
Comparison with Other Western Countries
The UK's inflation rate of 2.8 percent in June puts it in the middle of the other Group of Seven advanced-industrial democracies: Canada, France, Germany, Italy, Japan, and the US. The US has the highest inflation rate at 3.5 percent, followed by Italy (3 percent), Canada (2.8 percent), the UK (2.8 percent), Germany (2.3 percent), France (1.8 percent), and Japan (1.7 percent).
Key points
- The UK's inflation rate is driven by energy prices, services inflation, and slowing wage growth.
- The cost of living crisis is widespread, with 7.4 million low-income families unable to afford essential items this year.
- The UK's inflation rate is higher than some other Western countries, but lower than others.
- The war in the Middle East is driving up energy prices, which is contributing to the high inflation rate in the UK.
- Low-income families are being disproportionately affected by the cost of living crisis.
If the UK can find ways to reduce its reliance on imported energy and increase its domestic production, it may be able to mitigate the impact of higher energy prices on inflation. Additionally, if wages can keep pace with inflation, it may help to reduce the burden on low-income families.
If the war in the Middle East continues to drive up energy prices, it could lead to a prolonged period of high inflation in the UK. This could have serious consequences for low-income families, who may struggle to afford essential items. Additionally, if wages do not keep pace with inflation, it could exacerbate the cost of living crisis.
