Office for National Statistics (ONS) figures published on Wednesday reveal that annual Consumer Price Index (CPI) inflation fell sharply in July to 6.8%. This is the lowest level of inflation since Russia’s invasion of Ukraine in February 2022and is down more than a percentage point from June’s figure of 7.9%.

The fall in inflation was primarily driven by Ofgem’s slashing of the Energy Price Cap from £3,280 to the new rate of £2,074, which came into effect on July 1st. Compared with the year to June, last month gas and electricity prices fell by 25.2% and 8.6% respectively.

Food prince inflation, although remaining high, has continued to ease, with the annual inflation rate down from 17.3% in June to 14.9% in July. There has been a particular easing of inflation for household staples like milk, bread and cereal.

These figures have put the Government in a confident mood, with the Prime Minister announcing on social media platform ‘X’ that “the plan is working… If we stick to the plan I’ve set out, we’ll get it done”. However, while Wednesday’s figures are welcome, it is key to remember that prices are still rising, just at a slightly slower rate. This means that workers in low paid and insecure employment, who have tended to see wage increases below inflation, remain under immense financial pressure.

The cost-of-living crisis rumbles on

Inflation in Britain remains the highest in the G7, and we are a long way from the Bank of England’s target of 2%. Core inflation, which removes volatile items such as fuel and food, has remained unchanged this month at 6.9%.

This means that the prolonged living standards squeeze that has been a particular disaster for the 6.2 million people in insecure work is far from over. The Work Foundation recently found that around half of insecure workers earn less than the Joseph Rowntree Foundation’s Minimum Income Standard of £25,500 per year, leaving them especially vulnerable to sustained inflationary pressures.

Food inflation eases, but still hits low-income households the hardest

Although food inflation is easing, 14.9% is still extremely high and is currently the largest contributor to overall inflation, which places food prices at the centre of the cost-of-living crisis. Food inflation is bad for everyone but disproportionately impacts low-income households.

Those on lower incomes face a poverty premium when it comes to food price rises. Lower income households tend to spend a greater proportion of their overall income on essentials. Further, due to budget constraints, they are unable to save money by buying food in bulk and so end up spending more money on their food. This can have significant knock-on effects, with many low-income households facing the difficult choice between paying their bills or having food on the table.

Research by the Work Foundation has found that part-time insecure workers and freelancers were more likely than other workers to indicate they were struggling financially, at about 34% from both groups, compared with 23% of full-time workers. Therefore, these workers will likely be among the hardest hit by the rising price of food.

The spectre of interest rates hikes and recession looms

Earlier this week, the ONS published figures for weekly earnings for April to June. This revealed that the annual growth in regular pay (excluding bonuses) had risen to 7.8%, the highest regular growth rate since records began in 2001. However, wage increases where not shared equally among workers. Those employed in the finance and business services sector saw the largest weekly earnings growth at 8.2%. While industries that have a larger share of insecure workers received some of the lowest increases that fall short of inflation, such as wholesale, retail, hotels & restaurants (6.3%) and construction (5.8%).

These figures increase the likelihood that the Bank of England will raise interest rates next month. Capital Economics has predicted that an increase in service sector inflation coupled with higher than expected wage increases means the Bank of England will raise interest rates from 5.25% to 5.5% next month.

This could have a harmful knock-on effect on the economy. The Institute for Public Policy Research has cautioned that further interest rate increases could “kill” our economic recovery and drag the UK into a recession.

This would be a disaster for people in low paid and insecure work. A further hike in interest rates would push up rents and mortgage repayments, while a recession would likely increase unemployment and make it even harder for workers to access secure, well-paid roles.

While this month’s fall in inflation is positive news for hard-pressed insecure workers, the Government must not ignore the reality of millions of workers stuck in low-paid and insecure work are struggling with the ongoing cost-of-living crisis which has persisted well over a year and a half.

Therefore, Government should prioritise low income households for additional cost-of-living support, going beyond one-off support payments as we have seen over the past year, and raising benefits to provide a decent living standard. Further, Government should raise the national minimum wage in April 2024 in line with, or beyond inflation, to ensure the least well-paid are best supported through the cost-of-living crisis.

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