UK households to be £2,300 poorer as interest rate rises extend cost of living crisis

FILE - Shoppers buy food in a supermarket in London, Wednesday, Aug. 17, 2022. Official figures show that inflation in the U.K. has fallen to its lowest level since the immediate aftermath of Russia’s invasion of Ukraine which caused energy and food costs to surge. The Office for National Statistics said Wednesday that the consumer price index dropped to 8.7% in the year to April from 10.1% in March. (AP Photo/Frank Augstein, File)
Soaring food and energy prices, alongside increased mortgage rates have put a stranglehold on Britons' pursestrings. Photo: AP Photo/Frank Augstein

The average UK household is set to be £2,300 worse off by the time the cost of living crisis abates, according to new research by accountancy firm Grant Thornton and Retail Economics, which predicts difficulties will last to mid-next year.

UK households have already experienced the biggest squeeze in generations. The spiralling cost of food, energy and other daily expenses – and the failure of wages to keep pace with those – has cost UK households £50bn in lost disposable income from October 2021 to May this year, the research found.

What's more, consumers face a further £15bn of spending power erosion before growth in spending power returns, the research states.

Source: Grant Thornton, Retail Economics
Source: Grant Thornton, Retail Economics

Based on current projections, the cost of living crisis is expected to last for 31 months overall (Oct 2021 to May 2024), with the typical household left over £2,300 worse off over that period.

Read more: Mortgage costs to soar for 4 million households, Bank of England warns

Consumers intentions to cut back remains high, with 88% of households saying they plan to spend less, delay or cancel purchases.

This proportion remains broadly consistent with last year’s survey (86% – May 2022), as ongoing financial pressures and economic uncertainty continue to take their toll on consumers.

The news comes alongside research from the Bank of England that mortgage costs are set to rise for more than four million households.

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The report found that by the end of 2026, around a million households with a fixed-rate mortgage will have seen their monthly repayments go up by about £500, the half-yearly assessment said.

The average household will see their monthly interest payments go up by about £220 if they are refinancing during the second half of this year and see their rate go up by about 3.25 percentage points.

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