Ten months more cost of living pain for households, research suggests

Analysis by Grant Thornton and Retail Economics found that the typical household will be £2,300 worse off by the time the crisis ends.

Projections suggest it will last for 31 months from October 2021 – to May 2024 – with households now expected to suffer a loss of a further £15bn in spending power, in addition to the £50bn already eroded from families in the UK.

Richard Lim, CEO at Retail Economics said: “The relentless rise in interest rates has completely changed the narrative around the cost of living crisis. What started as a crisis among the least affluent households has evolved to capture a much wider array of income groups as housing affordability comes under enormous pressure.

“As pandemic savings have been whittled away, the squeeze on finances has become a war of attrition for many households.

“While peak inflation may have passed, households still have around 10 months of pain to come where cutting back spending will intensify for many households.”

Yesterday bank bosses were quizzed by MPs following news that average two-year fixed mortgage rates had jumped to a 15-year high.

The average deal on the market reached 6.6 per cent, August 2008 being the last time rates were higher. Rates reached a peak of 6.65 per cent following market volatility after September’s mini budget.

Henry Jordan, home commercial director at Nationwide Building Society, told the Treasury Committee: “There is a significant increase in rates for customers maturing off their original product.

“As context, for our mortgage book, it’s around a £235-per-month increase.”

Bradley Fordham, mortgage director at Santander UK, told the Treasury Committee the bank has seen a “small tick-up in arrears, still 20 per cent below pre-pandemic, 70 per cent below 2009 post-financial crisis, so relatively low levels”.

He said mortgage customers coming off deals and going on to new ones are seeing payment increases of “over £200 per month”.

Mortgage rates had started to settle down following the jump last autumn, but they have been increasing again amid expectations that interest rates will be higher for longer as the Bank of England tries to tackle stubbornly high inflation.

The Bank of England uses base rate rises as a tool to try to subdue inflation and the base rate is currently five per cent, following 13 increases in a row.

In further signs of the pressures on inflation, new figures show that wages have increased at a record rate.

The Office for National Statistics (ONS) revealed yesterday that average regular pay, not including bonuses, was 7.3 per cent higher in the three months to May compared with the same period last year.

Rishi Sunak has admitted inflation is “proving to be more persistent than people thought” but said this does not mean his course of action is “wrong”.