Cost of living squeeze over past five years has left working families £2,900 worse off, Resolution Foundation analysis shows

Working families are £2,900 a year worse off thanks to the cost of living squeeze over the past five years, new analysis shows.

The study by the Resolution Foundation think-tank lays bare how households have fared compared to how they would have done with inflation at more normal levels of around 2 per cent a year.

It sets out how some have responded to soaring prices by turning down the heating and others by falling behind on bills.

The report comes as consumers continue to grapple with surging fuel and energy costs and higher mortgage rates caused by the war in the Middle East.

Yesterday, the AA advised motorists that drivers could 'accelerate gently' to save on fuel. And average five-year mortgage deals this week topped 6 per cent for the first time in three years.

Next January, energy bills – already at the highest level in three years – are expected to rise by another 16 per cent.

Higher energy costs are at the 'epicentre' of the cost of living squeeze

The Resolution Foundation report found that a series of shocks have resulted in 13 years' worth of 'normal' inflation – equivalent to 2 per cent a year – in the past five years.

It meant that by this summer prices were nearly 30 per cent higher than in 2021.

The costs squeeze is the result of three major shocks, starting with the aftermath of the Covid pandemic when supply chains seized up as the global economy reopened.

That was followed by Russia's full-scale invasion of Ukraine in 2022 which helped push inflation has high as 11 per cent.

And more recently Donald Trump's Iran war has caused energy supplies from the Middle East to be choked off, driving oil and gas prices higher.

Energy costs have been 'at the epicentre' of the shocks over the past five years, also feeding into sharply higher food prices.

The poorest have been hit hardest as inflation has been steeper for essential items which represent a larger share of poorer households' spending, the report said.

With the public finances increasingly squeezed, the think-tank warned that the government will not be able to help all those affected as it did in past crises – suggesting middle income households may be left to fend for themselves.

James Smith, chief economist at the Resolution Foundation, said: 'Unfortunately, help is needed just when the public finances leave less room than ever to provide it.

'The Government can't borrow its way out of this, and repeating the expensive blanket support of 2022 isn't an option. Any new help must be squarely targeted at the poorer families facing the greatest hardship – starting with their energy bills.'