The Cost of Living: Where Are We Now?

The cost of living crisis that dominated British politics for two years has receded from the front pages. Inflation is back to near-target. Real wages are rising. The emergency is over. But for millions of households, the damage is not undone — it is simply no longer accelerating.

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The Uneven Recovery

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Households in the top income quintile have, on average, recovered the real purchasing power lost during the 2021-23 period. Those in the bottom quintile have not. The assets held by wealthier households — primarily property and financial investments — have rebounded. The wage income that lower-income households depend on has grown in nominal terms but not yet restored the losses from peak inflation.

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Food Prices

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Grocery prices are 26% higher than they were in January 2021. The rate of increase has slowed dramatically, but the level is permanent. Families that adjusted their diets and shopping patterns to cope — choosing own-brand products, reducing meat consumption, shopping at discounters — have not reversed those changes.

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The food banks that expanded so dramatically during the crisis are still at elevated utilisation levels.

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Energy

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The energy price cap has fallen from its peaks. But the structural changes in the energy market — higher European gas prices, tighter interconnection margins — mean that UK energy is unlikely to return to pre-2021 prices.

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The households most exposed to energy costs — renters in poorly insulated properties — remain vulnerable to any future price spikes.

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