The UK is still in the middle of a cost of living crisis. Over half of those earning under £30,000 per year reported that their finances are worse off in June 2023 than in June 2022.
The cost-of-living crisis has severely impacted the finances of the worst-off consumers in the UK. 60.1% of pension holders earning under £16,325 reported that their finances were, to some extent, worse off now than they were last year. Even for consumers earning under £30,000, this figure is 55.4%. By contrast, 52.2% of consumers who earn more than £100,000 per year reported that their finances are better off now than in June 2022. The unequal effects of the cost-of-living crisis – following the challenges of the COVID-19 pandemic and in the shadows of government austerity policies – starkly illustrates how sharply inequality is rising in the UK.
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In May 2023, the UK rate of inflation was 7.9%, up by 0.1 percentage points (pp) from the previous month. The OECD says that the UK is now the only G7 country facing rising inflation. For comparison, the average inflation rate among the G7 in May 2023 was 4.6%, a 0.8pp decline from April.
Moreover, food inflation in the UK remains way up, recorded at 18.3% in May 2023 as per the Office for National Statistics. These costs disproportionately affect lower-income consumers as they need to spend a greater percentage of their income on food (before rent/mortgage repayments and energy bills are even considered). While the inflation rate is lower than 2022 highs, its impact will likely continue to be felt until 2024 and possibly beyond.
With the Bank of England maintaining that interest rates will continue to increase, and then stay high for longer than originally thought, the UK economy looks set to dip into recession in 2023 (or maybe early 2024). As unemployment rises, incomes and savings will be further squeezed, definitively bringing demand down for insurance products. Insurers must be prepared to create low-cost products for these low-income consumers that will continue to be most heavily affected by the effects of the economic downturn.
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