UK drops down living standard table

The standard of living in the UK has fallen two places to the sixth highest in Europe after higher prices squeezed households.

Britain's living standards fell below Germany and Austria in 2011, according to new figures recorded by the Office for National Statistics and Eurostat. The UK was already behind Luxembourg, Norway and Switzerland.

The measure - actual individual consumption - takes in all goods and services that a household consumes, including benefits in kind such as health and education.

The drop came as prices in the UK rose to 3% above the EU average in 2011, from 2% in 2010, as inflation in Britain rose to a peak of 5% in September of that year.

At the end of 2011, Bank of England governor Sir Mervyn King said households were suffering from the biggest squeeze on living standards since the 1930s.

The actual individual consumption (AIC) measure for the UK was 18% higher than the EU average, compared to 20% higher last year.

Luxembourg came out on top, while Albania was the lowest with its AIC rating some 66% below the EU average. Switzerland is now the most expensive country in Europe, 65% above the average, replacing Norway, while Macedonia is the least expensive, coming 58% below the average.

The UK was the 14th most expensive country in Europe, up from 15th last year.

The rate of inflation has fallen since September last year, and although it jumped up again in October it is, at 2.7%, still less than one percentage point from the Government target. Softer prices have helped ease the burden on households, with recent figures for the third quarter showing the strongest rise in household spending in more than two years. However, this was in part helped by the boost from Olympic tickets.

Looking ahead, the Bank of England still expects inflation to fall, coming back towards the 2% target late next year.