The UK emerged from the economic damage inflicted by the pandemic over the last two years only to lurch straight into a new cost of living crisis. Disruptions to global supply chains, the swift reopening of the economy, and the war in Ukraine have all exacerbated economic stresses and significantly increased prices, particularly for energy.
At the national level, there is a clear understanding of the nature and scale of the crisis. In May 2022, inflation climbed to a record high of 9.2 per cent – the highest rate observed in the past 40 years – but underneath this national figure, less is known about how the cost of living crisis is playing out across places.
This report uses a city-level inflation estimate, developed for the first time by the Centre for Cities, and combines it with an analysis on wage growth to set out what the geography of the cost of living crisis is, what is driving it, and how the squeeze on disposable income is likely to be felt across the UK’s cities and largest towns.
Box 1: Methodology
Centre for Cities’ research focuses on the 58 largest cities and towns in England and Wales, defined as primary urban areas (PUAs). Unless otherwise stated, Centre for Cities uses data for PUAs in its analysis – a measure of the built-up area of a large city or town, rather than individual local authority areas. You can find the full definitions and a methodological note at www.centreforcities.org/puas
Data used in this research
This research uses national inflation data (rates and weights) at the component level published by the ONS. The authors have also used credit and debit card data from Beauclair to build a city-by-city inflation basket, as well as the EPC Domestic Register to measure the impact of domestic energy in the inflation basket. This research also uses a number of publicly available datasets from a number of sources, including HRMC and the ONS. This research focuses on England and Wales as data from the EPC Domestic Register is not available for Scotland and Northern Ireland.
Box 2: Estimating inflation rates at the local level
Centre for Cities’ city-level annual inflation rates are estimated by considering the varying nature of consumption baskets across cities. The inflation rate for each consumption component (i.e. energy, groceries, etc) is constant across cities (see Appendix 1), but their weight varies between cities depending on their consumption patterns.1 The consumption baskets weights at the city level are divided into three groups:
Housing: accounting for 10 per cent of inflation in all cities.2
Energy: The weight is based on the average energy cost using the distribution of the Energy Performance Certificate (available at the local level) as a share of mean net pay. This varies between 2.9 and 6.2 per cent across cities.3
Other goods and services: This part of the basket is based on the composition of spending at the city level for 2019, excluding housing and bills. This varies between 83.7 per cent and 87.1 per cent. Within these components, groceries have the highest weight: the sector accounts for 25 to 30 per cent of all spending.
Table 3 in the Appendix gives more detail on the inflation rates for each consumption component, based on CPI data. Table 4 shows how the individual components differ between cities.