Cost of Living Crisis UK: Current Status and Future Risks

By early 2026, UK inflation had settled back toward its pre-crisis range — a relief on paper. But for millions of families still crunching budgets around food, energy, and rent, the numbers never quite matched the feeling of getting ahead. The cost-of-living squeeze that began in late 2021 hasn’t disappeared; it has shifted shape. New pressures are already gathering on the horizon, and what happens next depends on forces that policymakers are watching closely.

Households reporting increased costs: 59% (January 2026, Statista) · UK CPI (January 2026): 3.3% (MoneyWeek) · Peak inflation: 11.1% (October 2022)

The table below consolidates verified inflation data from official and authoritative sources.

Is there still a cost-of-living crisis in the UK?

Current household impacts

The short answer from official data is yes — but the nature of the crisis has changed. In March 2025, 59% of households in Great Britain still reported a cost-of-living increase in the previous month, according to Statista. That figure has fallen sharply from the 91% peak recorded in August 2022, yet nearly six in ten households are still feeling the pinch. The crisis hasn’t ended; it has moderated unevenly.

Underlying inflation tells a similar story. UK CPI stood at 3.3% in the 12 months to March 2026, with the broader CPIH measure at 3.4% — both significantly down from the 11.1% peak of October 2022. Monthly price growth has also been running below prior-year levels in several periods, which ordinarily would be a cause for optimism. However, the trajectory shifted abruptly in early 2026.

Inflation trends 2025

Tracing month-by-month data from the Office for National Statistics shows a broadly downward trend through late 2025, punctuated by brief plateaus. CPI fell from 3.6% in October 2025 to 3.2% in November, with CPIH dropping from 3.8% to 3.5% over the same period. Housing and household services inflation stood at 4.8% in November 2025, easing slightly from 5.0% the prior month, while owner-occupiers’ housing costs tracked a deceleration that the ONS noted as the slowest since June 2023.

By January 2026, the picture had improved further: CPI hit 3.0% and CPIH reached 3.2% — the lowest level since March 2025 for both measures, per ONS figures. Food and non-alcoholic beverages contributed a downward drag to the November reading. However, the improvement proved fragile. The Iran war, which began on 28 February 2026, triggered an oil shock that pushed transport costs higher. By March 2026, CPI had risen to 3.3% from 3.0% in February, with monthly price growth of 0.7% outpacing the 0.3% seen a year earlier.

Why is life so unaffordable in Britain?

Key causes from 2021

The cost-of-living crisis did not arrive suddenly. It built up over years as a confluence of structural pressures collided with short-term shocks. According to research summarised on Wikipedia, the crisis began in late 2021, driven by the aftermath of COVID-19 lockdowns, a rapid surge in inflation, the compounding effects of Brexit-related trade costs, wage stagnation that preceded the pandemic, and — critically — the Russo-Ukrainian war that sent energy prices soaring through 2022 and 2023.

None of these causes operated in isolation. Energy price caps rose by over £100 per year for typical households, according to the Resolution Foundation’s Living Standards Outlook 2025, and the combination of higher food, fuel, and housing costs outpaced wage growth for the majority of workers. Regular pay did not consistently outpace inflation until May 2023, leaving roughly two years during which real earnings effectively shrank for many.

Housing and energy drivers

Housing costs have been among the most persistent components of the crisis. Even as headline CPI moderated, housing and household services inflation remained elevated — running at 4.8% in November 2025 and 4.2% in January 2026, per ONS data. Owner-occupiers’ housing costs, which are included in CPIH but not the standard CPI, have proved particularly sticky, with the ONS noting ten consecutive months of slowing OOH inflation by November 2025. However, that slowdown began from a high base, meaning absolute costs were still growing faster than general prices across the economy.

The IFS has noted that the cost-of-living crisis involves more than just inflation — structural factors like housing supply constraints, welfare benefit levels, and childcare costs all contribute to the unaffordability felt on the ground, even when the CPI number looks manageable. This gap between macroeconomic data and lived experience is central to understanding why 59% of households still report increases even at lower inflation rates.

How much money do I need to live comfortably in the UK?

Minimum income benchmarks

Defining “comfortable” is itself contested, but Crisis UK research has quantified a stark baseline. Families on the breadline face a housing deficit of £372 on average, according to the charity’s analysis. That figure represents the gap between housing costs and what lower-income households can realistically afford without sacrificing essentials — and it predates the worst of the 2021–2024 inflation surge.

The Resolution Foundation’s 2025 living standards outlook adds broader context: incomes in 2024–25 were no higher in real terms than they were in 2019–20, before the crisis began. That five-year stagnation means families who were already struggling then have had little or no improvement in their financial position despite the passage of time. The energy price cap rise of over £100 per year, also noted in the Foundation’s analysis, ate directly into discretionary spending for those already on tight budgets.

Regional variations

Affordability is not uniform across the UK. London and the South East have long carried the highest housing costs relative to incomes, while parts of the North, Midlands, and coastal towns offer substantially lower living costs. The crisis has intensified these disparities: as energy and food costs rose nationally, lower-cost regions absorbed less of the shock in absolute terms, even though lower-income households in those areas still faced proportionally greater hardship relative to their resources.

The distinction between Great Britain data (which covers England, Scotland, and Wales) and UK-wide figures is also relevant — Northern Ireland has distinct welfare arrangements and housing markets that can diverge from GB trends. For those researching specific areas, regional breakdowns from the ONS and housing charities offer more granular guidance than national averages alone.

Could Britain be heading for a housing crash?

2026 risks

The question of a UK housing crash is being actively debated among economists and analysts. Several risk factors are in play. First, higher inflation driven by energy and transport costs could force the Bank of England to pause or reverse its rate-cutting cycle. Mortgage borrowers on variable or tracker deals — and those coming off fixed-rate deals — would face higher monthly payments as a consequence. Second, stretched affordability ratios (house prices relative to incomes) mean that any material rise in borrowing costs could trigger a rapid cooling in buyer demand.

The Bank of England had originally forecast an inflation peak of 3.7% for September 2025, per the Resolution Foundation. Actual figures came in below that, but the Iran war and its associated oil shock have introduced fresh upward pressure that could push CPI back above 4% later in 2026. If that occurs, the Bank’s room to cut rates narrows — and the housing market, which depends heavily on cheap credit, becomes more vulnerable.

Market indicators

The ONS monthly data provides some guidance. Housing services inflation had been decelerating, falling from 4.6% in December 2025 to 4.2% in January 2026 — the lowest rate of increase since mid-2023. Owner-occupiers’ housing costs followed a similar deceleration, suggesting that the housing supply-demand imbalance was not tightening further at the same pace as during the crisis peak. However, the fact that these figures remain above 4% — roughly double the Bank of England’s 2% target — means that housing costs continue to outpace general inflation.

Where is the nicest but cheapest place to live in the UK?

Top affordable locations

For households prioritising cost above all else, certain UK locations consistently offer lower living costs without the extremes of rural isolation. Towns in the North East, parts of Wales, coastal Kent, and the Midlands all appear in affordability rankings for 2025–2026. The trade-off is typically lower wages relative to London and the South East — so the financial logic depends on whether a household’s income is portable.

Quality vs cost balance

Research from Eufy’s 2026 analysis highlights specific towns where housing costs remain substantially below the UK average while local amenities and connectivity have improved. These locations represent a practical strategy for households seeking to stretch their income further: trading geographical prestige for genuine purchasing power. For families particularly affected by the crisis — those facing the £372 housing deficit identified by Crisis UK — geography is not a lifestyle preference but a financial survival tool.

The “best” location ultimately depends on a household’s specific income, health needs, and career situation — there is no universal answer that works for everyone.

Expert perspectives

Michael Saunders (Former Bank of England rate-setter, Oxford Economics):

“The oil shock following the Iran war will almost certainly have pushed the UK’s rate of CPI inflation up in the year to March.”

Resolution Foundation analysts (Living Standards Outlook 2025):

“Incomes in 2024-25 were no higher in real terms than they were in 2019-20 due to the cost of living crisis.”

Related reading: DWP Cost of Living Payments

Even with CPI dipping to 3.3% in March 2026, the 2025 UK crisis update highlights persistent pressures on households amid inflation trends and potential oil shocks since 2021.

Frequently asked questions