The great majority of households in Britain are currently experiencing a fall in the buying power of their incomes. Put simply, inflation is running around 5%, and few households have seen their incomes rise by this amount in the past year. But for those people lucky enough to have jobs, is this causing a fundamental reduction in living standards, or is it just a matter of making relatively small adjustments in our lifestyles?

This paper identifies new evidence that, because of a new inflation environment, hard times started significantly earlier for households on lower incomes than for the average UK household. Because the costs of essential goods and services have been rising much faster than standard rates of inflation for some time, households on modest incomes have fared far worse than official data suggests.