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UK inflation is nearly 11% for poorest households, think tanks say

·4 min read
UK inflation rose to a 40-year high of 9% in April as the energy price cap soared 54% during the month.Photo: Li Ying/Xinhua via Getty
UK inflation rose to a 40-year high of 9% in April as the energy price cap soared 54% during the month.Photo: Li Ying/Xinhua via Getty

Poorest households in the UK are being hit the hardest by soaring inflation because they spend more of their total budget on energy bills and food, according to the Institute for Fiscal Studies (IFS).

The IFS has calculated that the bottom 10% of Britain's population in terms of income faced a rate of inflation of 10.9%, up 3 percentage points compared to the inflation rate of the richest 10% at 7.9%.

Most of this difference is because the poorest families spend 11% of their total household budget on gas and electricity, compared to 4% for the richest households, the IFS said.

Read more: How to cope with bills out of the blue when you really can’t afford it

The think tank estimates the difference is largely due to soaring energy bills, with the price cap jumping 54% to £693 ($857) for the typical family in April.

It came as UK inflation soared to a more than 40-year high of 9% in April thanks in part to rising food, energy and fuel prices and the war in Ukraine as the economy deteriorates and people have less to spend.

Around three quarters of the increase in the annual inflation rate this month came from utility bills, according to Grant Fitzner, chief economist at the ONS.

Motor fuel prices soared to record highs, driving inflation higher after the Ukraine crisis lifted oil prices. Petrol jumped 28.9%, electricity 53.3% and gas 95.5%, according to the ONS.

Food inflation and non-alcoholic beverages increased to 6.7%, the fastest rate since 2011. This includes double-digit rises for some products such as pasta (+10.4%), lamb (14.3%), beef and veal (+10.2%), poultry (+10.1%), oil and fats and milk (+14.5%).

Read more: UK inflation hits 40-year high of 9% as cost of living squeeze intensifies

Heidi Karjalainen, a research economist at the IFS, said: "Because so much of the increase was driven by the increase in the gas and electricity tariff cap, poorer households who spend more of their budgets on gas and electricity, faced an even higher rate of inflation.

"We estimate that the poorest 10% of households faced an inflation rate of 10.9%. State benefits only increased by 3.1% in April. This means big real terms cuts to the living standards of many of the poorest households.

"Continuing pressures, such as the war in Ukraine, are likely to push Ofgem’s October tariff cap, as well as other prices including food prices, even higher later this year.

"We are likely to be in a prolonged period during which poorer households are facing rates of inflation even higher than the headline figures would suggest."

The Resolution Foundation, which focuses on living standards, estimated that the poorest households faced a rate of 10.2%.

Analysts at the foundation said Wednesday data showed the need for the poorest households to be given targeted support by the government, potentially through an increase in Universal Credit or a sharp rise in the Warm Home Discount scheme, which helps with energy bills.

"Inflationary pressures are likely to continue to grow through the year as the effects of higher energy prices continue to work their way through businesses and into consumers’ pockets," warned Jack Leslie, senior economist at the foundation. "Nobody knows how long these pressures will last, or how workers will respond via higher wage demands, which is why the Bank faces a tough judgment on the pace and scale of interest rate rises."

Leslie added that the "value of pensions are also falling rapidly before rebounding when uprating catches up to the inflation spike".

Meanwhile, the Trades Union Congress has called on chancellor Rishi Sunak to step in with an emergency Budget to help struggling households.

It points out at the 11% monthly rise in the retail price index, which is used for wage bargaining and train tickets.

Watch: How to save money on a low income