Rising Living Costs
Multi-decade high inflation has, over the past year, pushed up the cost of necessities – and these costs are expected to rise further. This comes after years of slow real wage growth that has eroded households’ capacity to prepare for retirement.
In this section, we explore the slowdown in real wage growth and the magnitude of the increase in the costs of living.
Wage Stagnation
The financial crisis had a lasting impact on the UK’s economic performance. While real (inflation-adjusted) median wages had grown on average 1.8% each year before the crisis, they declined in its aftermath, and only recovered after 14 years – the slowdown driven in part by the UK’s weak productivity growth.
The slow recovery meant large losses for the median earner: today they would earn £7,700 more per year before tax had growth continued at pre-crisis rates.
All of these losses come before the impact of the recent rise in inflation that has put further pressure on household finances.
Conclusion
Rising living costs
The past year has seen inflation surge to multi-decade highs pushing up the price of necessities. With a predicted unprecedented monthly increase of £200 over this year and next, household finances are increasingly under pressure.
The combination of the economic impact of the war in Ukraine and the continued supply chain disruption from Covid-19 will mean inflation is likely to stay high in the near future.
