UK Inflation Hits 41-Year High of 11.1% as Energy Crisis Drives Cost-of-Living Emergency

The Office for National Statistics reported on 16 November 2022 that the Consumer Prices Index had risen to 11.1% in the 12 months to October — the highest reading since comparable records began in January 1988 and almost certainly the highest rate of consumer price inflation in Britain since the early 1980s. The figure confirmed what millions of households were already experiencing: a cost-of-living crisis unlike anything in living memory for most of the population.

The primary driver was energy. Ofgem's energy price cap — introduced to shield consumers from the full volatility of wholesale gas markets — had risen by 80% in October to an average of £2,500 per year for a typical household, following Russia's invasion of Ukraine and the subsequent collapse of Russian gas exports to Europe. Food prices, meanwhile, rose by 16.4% over the year, driven by higher fertiliser costs, supply chain disruptions and the impact of the war on global wheat and sunflower oil production.

"We understand people are struggling with the rising cost of living. That is why we are taking action worth £55 billion to help." — Chancellor Jeremy Hunt, Autumn Statement, 17 November 2022

The Bank of England's response

The Bank of England had begun raising interest rates in December 2021, when the base rate stood at a historic low of 0.1%. By the time inflation peaked, the Bank had raised rates six consecutive times, reaching 3.5% in December 2022 — the fastest tightening cycle since the 1980s. Governor Andrew Bailey faced criticism from politicians and some economists for having been too slow to act as inflationary pressures built through 2021, though the Bank argued that raising rates before the pandemic recovery was secure would have been premature.

The rate rises, combined with the surge in energy bills, created a compound crisis for households with mortgages. The average two-year fixed-rate mortgage deal — which had stood at around 2.3% at the start of 2022 — rose above 6% by October, adding hundreds of pounds to monthly payments for homeowners coming off cheap fixed deals. Approximately 1.4 million fixed-rate mortgages were due to be refinanced in 2023, raising fears of a wave of defaults and forced sales.

Government intervention

The scale of the crisis prompted a series of government interventions. The Energy Price Guarantee, introduced under Prime Minister Liz Truss's brief administration and retained by Rishi Sunak, committed the state to paying the difference between actual energy costs and a capped rate for households, at an estimated cost to the Treasury of around £60 billion over two years. Additional cost-of-living payments were made to households on universal credit, pensioners and those with disabilities.

Despite these measures, food bank usage reached record levels. The Trussell Trust, which operates the largest network of food banks in the UK, reported distributing 2.99 million food parcels in the year to March 2023 — a 37% increase on the previous year. Community food banks outside the Trussell Trust network reported similar or steeper increases.

Inflation subsequently fell through 2023, reaching 4.0% by January 2024 and returning to the Bank of England's 2% target in May 2024. But the legacy of the inflationary surge — the permanent increase in price levels for food, energy and services — remained embedded in household budgets, contributing to the sense of economic insecurity that shaped the 2024 general election result.