Economy

The economic challenges facing Liz Truss, in four charts | UK cost of living crisis

Liz Truss is expected to announce her plans to cut energy bills and tackle the cost of living crisis in a statement to parliament on Thursday.

The new prime minister promised in her maiden speech this week to “deal hands on” with the immediate pressures facing households as the soaring cost of gas and electricity pushes inflation to the highest level in 40 years.

Here are four key charts that set out the scale of the challenge.

Soaring energy bills

Households are bracing for the energy price cap to rise by 80% from the start of October, after Ofgem, the industry regulator, confirmed the move at the end of last month. That would increase the cost of a typical family bill to £3,549 a year.

price cap

Without government intervention, wholesale energy prices could force the cap to rise yet further next year.

Choppy wholesale gas prices

Wholesale gas prices have fallen back in recent days, although they still remain almost three times higher than when Russia started reducing flows into Europe.

Graph: wholesale gas prices

Huge uncertainty does however remain. On Wednesday, Vladimir Putin threatened to cut off all deliveries of gas, oil and coal to Europe if a mooted EU price cap on Russian energy is imposed. Recalling a Russian fairytale, he said Europeans could “freeze like the wolf’s tail”.

Rampant inflation

UK inflation reached double digits in July for the first time since the early 1980s, hitting 10.1% amid the sharp rise in energy prices and thanks to the rising cost of food and basic essentials in the shops.

inflation

The Bank of England has forecast a peak above 13% after the October energy price cap increase, while some economists say it could peak above 20% – close to matching the postwar record set in 1975 – without government intervention to bring down wholesale costs.

Rising fuel poverty

The energy bills crisis is disproportionally affecting poorer households, who typically spend a larger share of their income on basic essentials such as utilities and food than richer families. For this reason, charities have called for Truss to use targeted support for the poorest in society.

fuel poverty

Some areas of the country risk seeing almost every home in fuel poverty. Even with a freeze in the energy price cap at £2,500 for a typical bill, and with £400 of support previously announced for families, the End Fuel Poverty Coalition estimates that 16.4 million people in 6.9m UK households will be left in fuel poverty this winter.

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