Five charts that explain the high cost of living in the UK

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The Bank of England expects inflation to climb further in the second half of the year as the fallout from the United States-Israel war on Iran pushes up energy prices and household bills. How high is inflation in the UK? Who is hardest hit? And how does it compare with other countries? The annual rate of inflation in June was 2.8 percent, down from 3 percent in May. That means prices are still rising, but they are going up a bit more slowly than they were earlier in the year. In practical terms, if something cost 100 pounds (about $135) in June last year, that same item now costs 102.80 pounds ($138.65). Before the US and Israel attacked Iran on February 28, the Bank of England had forecast that inflation as measured by the Consumer Prices Index (CPI) would fall from 3.4 percent in 2025 to 2.3 percent in 2026. Instead, inflation was again 3.4 percent in March this year, largely driven by higher fuel and heating costs. 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. According to data from the RAC Foundation, the price of petrol and diesel rose by 22 percent and 27 percent, respectively, between February 25 and August 11. The average price of a litre (about a quarter of a gallon) of petrol increased from 1.32 pounds ($1.78) to 1.61 pounds ($2.17) while diesel rose from 1.42 pounds ($1.92) to 1.81 pounds ($2.44) per litre. Not every household feels inflation in the same way. For the average UK household, about 677 pounds ($914) is spent each week on goods and services with some of the biggest costs being housing, fuel and power, transport, food and recreation. The impact is much greater for households on lower incomes. The Office for National Statistics (ONS) found that the poorest 20 percent of households spent an average of 407 pounds ($549) a week compared with 1,084 pounds ($1,462) for the richest 20 percent of households. Proportionally, the poorer households will feel the rise in prices more keenly. That’s because the difference is particularly important when prices are rising. Someone spending a larger portion of their income on rent, energy, food and transport has far less of a cushion to absorb any increase in those costs. According to the Joseph Rowntree Foundation, a charity that conducts and funds research aimed at fighting poverty in the UK, the cost of living crisis is widespread with 7.4 million low-income families unable to afford essential items this year – the highest since 2021 when its cost-of-living tracker began. The UK’s 2.8 percent inflation rate 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). Countries have different exposures to inflation through energy prices, wage pressures and government policies. For the UK, inflation is primarily being driven by the energy triggered by conflict in the Middle East; services inflation, which in June was 3.6 percent, driven by higher costs at restaurants and hotels; and slowing wage growth. For Britons, the weekly food shop is still more expensive than it was a year ago, but the latest figures show that food price inflation has slowed. This doesn’t mean prices are falling, of course – just not rising so quickly. According to the ONS, food and nonalcoholic drink prices were 1.7 percent higher in June than a year earlier, down from 2.2 percent higher in May. There could be more pressure ahead as the Bank of England says food prices are likely to be affected by higher energy costs affecting the production and transport costs of food. It predicts that food inflation will rise to nearly 3.5 percent by December while supermarkets have said they expect food inflation of 4 to 5 percent by the end of the year. Weekly regular real earnings, which measure workers’ standard pay adjusted for inflation, have also dipped in recent months, from about 0.4 percent at the start of the year to 0.1 percent after the Iran war began, again making it harder for people to afford price rises. 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