Daily Junction.mobi portalNews · July 2, 2026 · Daily Junction Editorial Team · 7 min
UK inflation hit 11.1% in 2022, the highest in 40 years — here's what inflation is, what causes it, and how the Bank of England fights it.
In 2022, UK households faced the worst cost of living crisis in a generation. Inflation hit 11.1% — the highest in 40 years — and prices soared for energy, food, and almost everything else. A weekly shop that cost £80 in 2020 cost £100 by 2023. Energy bills doubled. Mortgage payments jumped. Wages did not keep up, and millions of people struggled to make ends meet. The Bank of England responded by raising interest rates from 0.1% to 5.25%, the fastest increase in decades, to bring inflation under control. By mid-2024, inflation had fallen to 2.3%, but prices remain high, and the scars of the crisis linger. Here is everything you need to know about inflation — what it is, what causes it, and how the Bank of England fights it.
Inflation is the rate at which prices rise over time. It is measured as a percentage increase in the average price of goods and services.
For example, if inflation is 5%, a basket of goods that cost £100 last year now costs £105.
In the UK, inflation is measured by the Consumer Price Index (CPI), which tracks the prices of a basket of 700+ goods and services that a typical household buys, including:
The Office for National Statistics (ONS) collects prices from thousands of shops, websites, and service providers every month, and calculates the average change. This is the CPI inflation rate.
The Bank of England has a 2% inflation target, set by the government. This is considered the optimal rate — low enough to keep prices stable, but high enough to encourage spending and investment.
If inflation is too high (above 3%) or too low (below 1%), the Bank of England Governor must write a letter to the Chancellor explaining why and what the Bank will do about it.
Inflation happens when demand exceeds supply — when people want to buy more goods and services than are available, prices rise.
There are three main causes:
Demand-pull inflation happens when the economy is growing strongly and people have more money to spend. Businesses cannot keep up with demand, so they raise prices.
This is "good" inflation because it is driven by economic growth. It is what the Bank of England targets with its 2% goal.
Cost-push inflation happens when the cost of producing goods rises (e.g., higher wages, energy costs, raw materials), and businesses pass these costs on to consumers by raising prices.
This is "bad" inflation because it is not driven by growth — it is driven by external shocks (like the 2022 energy crisis).
Monetary inflation happens when there is too much money in the economy. If the government prints money or the central bank keeps interest rates too low for too long, people have more money to spend, which drives up prices.
This is what happened after the 2008 financial crisis and the COVID-19 pandemic, when central banks pumped trillions into the economy to prevent recession.
UK inflation hit 11.1% in October 2022, the highest since 1981. The causes were:
The Russia-Ukraine war (started February 2022) caused a global energy crisis. Russia supplies 40% of Europe's gas, and the war disrupted supply, sending prices soaring.
UK gas and electricity prices doubled in 2022. The energy price cap (the maximum suppliers can charge) rose from £1,277 per year (October 2021) to £3,549 per year (October 2022).
Energy is a major input cost for businesses (transport, manufacturing, heating), so higher energy prices pushed up the cost of everything.
Food prices rose 19% in 2022–2023, driven by:
Staples like bread, milk, and eggs saw the biggest rises.
COVID-19 lockdowns disrupted global supply chains. Factories closed, shipping costs soared, and shortages of goods (semiconductors, building materials, consumer goods) drove up prices.
When lockdowns ended, demand surged (people had saved money during lockdowns), but supply could not keep up.
Brexit and COVID-19 caused labour shortages in key sectors (hospitality, transport, healthcare, agriculture). Businesses had to raise wages to attract workers, and they passed these costs on to consumers.
After the 2008 financial crisis and COVID-19 pandemic, the Bank of England kept interest rates at 0.1% and pumped money into the economy through quantitative easing (QE) — buying government bonds to increase the money supply.
This kept the economy afloat during crises, but it also created too much money chasing too few goods, which drove up prices.
The Bank of England's job is to keep inflation at 2%. When inflation is too high, the Bank raises interest rates to cool the economy.
The Bank of England base rate is the interest rate the Bank charges to commercial banks. When the base rate rises, banks pass the cost on to consumers by raising interest rates on:
At the same time, savings rates rise, making it more attractive to save rather than spend.
Higher interest rates reduce demand by:
This cools the economy, reduces demand for goods and services, and slows price rises.
The Bank of England raised interest rates 14 times between December 2021 and August 2023, from 0.1% to 5.25% — the fastest increase in decades.
| Date | Base rate |
|---|---|
| December 2021 | 0.1% |
| December 2022 | 3.5% |
| August 2023 | 5.25% |
| June 2024 | 5.25% (held) |
The rate rises worked: inflation fell from 11.1% in October 2022 to 2.3% in June 2024.
But the rate rises also caused pain:
High inflation erodes purchasing power — the amount of goods and services you can buy with your money.
If you earned £30,000 in 2020 and got no pay rise, your real income in 2023 was:
This is because cumulative inflation over 2020–2023 was around 20%, meaning £100 in 2020 was worth only £83 in 2023.
Losers:
Winners:
As of June 2024, UK inflation is 2.3% — close to the Bank of England's 2% target. The Bank has held interest rates at 5.25% and is expected to start cutting rates in late 2024 or early 2025.
But the cost of living crisis is not over:
![[View image]](/img/what-is-inflation-uk-explained.jpg){kind=link}