The Cost of Living in Britain: Inflation Is Falling, But Prices Have Not

UK inflation peaked at 11.1% in October 2022 — the highest in four decades. By 2025 it had returned to approximately 2.5%. This improvement is genuine and significant. But there is a distinction between the rate of price increases slowing and prices actually falling, and it is a distinction that matters enormously for households trying to manage budgets. Prices that rose 25–30% between 2021 and 2024 have not come back down. The cost-of-living crisis has not ended; it has stabilised at a new, higher level.

Who Has Been Hit Hardest

Lower-income households spend a higher proportion of their income on food, energy, and housing — the categories where prices rose fastest and most persistently. ONS analysis shows that effective inflation for the poorest fifth of households was significantly higher than the headline CPI figure throughout the crisis. For households spending 25–30% of income on food, a 25% cumulative increase in food prices represents a severe real income shock that cannot simply be absorbed.

Real Wages: A Partial Recovery

Nominal wage growth accelerated through 2022 and 2023, driven by a tight labour market and the bargaining power that low unemployment gave workers. By 2025, real wages had recovered to broadly pre-crisis levels for median earners — but this masks significant variation. Those at the lower end of the wage distribution, in sectors with weaker bargaining power, and in regions with less dynamic labour markets have recovered more slowly or not at all.