Invasion of Ukraine caused energy prices and inflation to skyrocket

Russia's full-scale invasion of Ukraine in February 2022 caused energy prices and inflation to rise sharply, according to the Resolution Foundation, which said the invasion "caused energy prices and inflation to skyrocket"¹. Oil prices peaked at $133 per barrel following the invasion, in part because of sanctions imposed against Russia that curbed global supply². European natural gas futures topped out at €340 in August 2022, up from €70 before the war².

The effect on household bills was immediate. Ofgem raised the energy price cap by 54% in April 2022, from £1,277 to £1,971 for the average household². In October 2022 the cap was set to jump to £3,549, a further 80% increase, before the government introduced the Energy Price Guarantee, which superseded the Ofgem cap and adjusted the level to £2,500, meaning the cap "only" increased by 27%². Households also received a £400 rebate on their bills through the Energy Bills Support Scheme². The support package cost £24 billion for the Energy Price Guarantee and £11.7 billion for the Energy Bills Support Scheme, equivalent to 1.3% of annual GDP².

Inflation followed energy prices. CPI was 5.5% in January 2022, well above the Bank of England's 2% target, and reached 11.1% by October 2022, the highest level in several decades². The Economics Observatory said most of the increase in energy prices came after the invasion at the end of February 2022, and that household energy prices rose by 132% between December 2020 and October 2022, contributing almost one third of CPI inflation over that period³. The Bank of England's Monetary Policy Committee raised interest rates 14 times in a row from 2021 to 2023, from 0.25% in December 2021 to 3.5% by the end of 2022 and a peak of 5.25% in summer 2023².

Energy debt rose as bills outpaced incomes. Ofgem data shows the average debt for an electricity account in arrears was £852 in the first quarter of 2022 and £687 for gas; a year later these had jumped to £1,220 and £966². By the end of 2025, electricity accounts in arrears stood at more than 1.1 million, up 48% since the end of 2021, while gas accounts with outstanding payments grew by 54% over the same period².

The Resolution Foundation's analysis of ONS household income data for 2021-22 found median incomes for non-retired households fell by 0.3%, or around £100, in real terms, while real-terms incomes among low-income households fell by 4%, or around £600¹. The richest fifth saw a 7.8% increase in wages while the poorest fifth saw a 7.5% fall¹. The Gini coefficient rose to 35.7%, its highest level since 2018-19¹.

Why it matters for households

The energy shock changed what households paid for gas, electricity and petrol from 2022 onwards, and the support that offset it was time-limited. The Energy Price Guarantee was originally due to last two years, then was set in Jeremy Hunt's November 2022 budget statement to continue for 18 months after April 2023 at a less generous rate, rising to a maximum of £3,000 from April 2023³. The £400 Energy Bills Support Scheme payment was made over the winter months from October 2022 to March 2023³.

Higher inflation also fed into borrowing costs. Fixed-rate mortgage prices rose in early 2026 following the start of the US and Israeli conflict with Iran in late February, with 2-year fixed rates rising from 3.97% to 5.14% and 5-year fixes from 4.01% to 5.00% by the end of April, while tracker rates were unaffected because they follow Bank Rate⁴. The Intermediary Mortgage Lenders Association notes that fixed-rate mortgages account for more than 90% of all new loans⁴. Real wage growth was negative from April 2022 to May 2023, meaning prices grew faster than pay².

What happens next

The Resolution Foundation said that in the two years following the period covered by the 2021-22 income data, households would face a "bleak couple of years" as a result of the cost-of-living crisis¹. The Economics Observatory noted that the fiscal cost of the Energy Price Guarantee could range from £70 billion to £140 billion over two years, depending on natural gas prices, and that the revised guarantee would reduce inflation by 2-3% after April 2023³. Nesta reports that recent predictions from Cornwall Insight suggest the price cap will rise to £1,836 in July 2026, with a further rise in October uncertain².