When will the cost of living crisis end?

Typical energy bills may be about to reduce by £122, but for millions of Britons the cost of living crisis continues to linger.

The cost of living crisis is not over for millions, despite today's announcement that energy bills will decrease this year. (Alamy)
The cost of living crisis is not over for millions, despite today's announcement that energy bills will decrease once again. (Alamy)

The average household energy bill is set to fall again - but experts have warned high costs could last for a decade.

Regulator Ofgem has announced it is dropping its price cap from the current £1,690 for a typical dual fuel household in England, Scotland and Wales to £1,568 as of 1 July. It works out as a 7% drop of £122 over the course of a year.

This is around £500 less than the cap in July last year, when it was £2,074.

However, the new £1,568 cap is still well above the £1,277 price cap in place when the cost of living crisis began to take hold in late 2021.

And for millions of Britons, the effects of the cost of living crisis continue to linger. Here, Yahoo News UK explores how long this could last.

The bad news is that it could go on for years - to some extent at least.

While Ofgem’s announcement is a sign energy bills are returning to normal, Citizens Advice chief executive Dame Clare Moriarty said it is "small comfort" for many households.

“The fall in the energy price cap reduces bills slightly, but our data tells us millions have fallen into the red or are unable to cover their essential costs every month.

“People cannot rely on lower energy prices alone to escape the financial issues they’ve been experiencing."

And Citizens Advice is not alone in its warnings.

For a start, analysts have said they expect Ofgem to increase the price cap in October, before dropping it again in January next year.

Mike Thornton, chief executive of the Energy Saving Trust, welcomed the price cap fall but warned it is not a "sign of stability".

Energy price caps since last year. (PA)
Energy price caps since last year. (PA)

“Forecasts show that energy prices are set to rise again this autumn and will be staying high overall for the next decade," he said.

“After the election, the incoming UK government must prioritise policies that support people to use less energy and install cost-effective energy efficiency improvements in their homes." Labour leader Sir Keir Starmer has claimed his proposed GB Energy would bring down energy bills “for good”.

Fuel poverty charity National Energy Action has estimated 5.6 million households will be in fuel poverty when the new price cap comes into force, compared to 4.5 million in late 2021.

"Unfortunately, fuel poor households will not enjoy affordable energy through occasional small changes in the price cap," chief executive Adam Scorer said.

Meanwhile, inflation has been a key feature of the cost of living crisis. The good news is that it has rapidly fallen from an 11.1% peak in October 2022, with recent figures showing it stood at 2.3% in April. And the Bank of England has said inflation could fall to its 2.0% target "in the coming months".

The UK inflation rate since 2019. (PA)
The UK inflation rate since 2019. (PA)

However, it also warned this doesn't mean prices will actually fall. "Most things will cost more than they did before," the Bank said.

It has also warned: "We can’t rule out another global shock that keeps inflation high. For example, developments in the Middle East could increase inflation by causing oil prices to rise."

Furthermore, the Bank has continued to hold interest rates at a 16-year high of 5.25%.

With about 1.6 million fixed-rate mortgages due to end, or having already ended at some point this year, it means many homeowners will be remortgaging onto significantly higher rates before seeing the base rate start to be cut.

This cost of living outlook comes after a report earlier this year said millions of people are living far below the poverty line in UK.

The Joseph Rowntree Foundation (JRF) said six million of the poorest people in the UK would need to more than double their income to escape poverty, warning this is evidence of a “social failure at scale”.

It also said its analysis, based on government and Office for National Statistics figures, showed more than a fifth (22%) of people in the UK were living in poverty in 2021/22.

This means around 14.4 million people in total, including 8.1 million working-age adults, 4.2 million children and 2.1 million pensioners who were living in households below 60% of the median income after housing costs.

Paul Kissack, JRF group chief executive, said: “Little wonder the visceral signs of hardship and destitution are all around us, from rocketing use of foodbanks to growing numbers of homeless families. This is social failure at scale."

Consumer champion Martin Lewis called for policymakers and regulators to “sit up [and] take note” of the report.

The government said it has supported families with £104bn of funding to help with the cost of living.