The UK is in the grips of a cost-of-living crisis that only looks set to get worse. Consumer price inflation hit 9.4% in June and experts are now warning it could peak at 15%. The resulting squeeze on household budgets is already affecting retail spend. In June, sales were down 1% year-over-year (YoY) despite an uplift from the Queen’s Platinum Jubilee bank holiday. This Analyst Take will explore what is driving inflation, how consumer behavior is changing, and what retailers and brands should be doing to mitigate the impacts.

UK inflation is at a 40-year high

The UK currently has the fastest inflation rate of any G7 country, with the consumer price index at its highest level since the 1980s. Consumer prices have been rising since 2021 as a result of three key factors:

• COVID-19: The pandemic and related lockdowns resulted in a spike in demand for some consumer goods, plus supply-chain issues that disrupted availability of components and packaging. This caused supply shortages, which have in turn contributed to rising prices.