High cost of living: Impact on households

The cost of living increased sharply in the UK during 2021 and 2022. The annual rate of inflation peaked at 11.1% in October 2022, a 41-year high, before subsequently easing. In May 2024, inflation fell to 2.0% (the Bank of England’s target) for the first time since July 2021. Inflation then increased, ranging from 3.0% and 3.8% between April 2025 and March 2026. It has been slowly falling in recent months and was 2.9% in July 2026.

Even though inflation is no longer as high, the cumulative effect of rising prices means households face a much higher cost of living than in 2021. However, there are some signs that the effects on households of the high period of inflation have started to ease.

Some data from March and April 2026 shows that households noticed a temporary rise in their cost of living due to higher fuel prices as a result of the Middle East conflict.

People are still reporting higher cost of living

In July 2026, 56% of adults in Great Britain reported an increase in their cost of living compared with the previous month. Of those whose cost of living increased, 94% said it was because food shopping had increased in price, while 68% said it was because fuel prices had increased.

Source: ONS, Public opinions and social trends, Great Britain: household finances, 14 August 2026

Low-income households are most affected

Office for National Statistics (ONS) data shows that households with the lowest incomes experienced a higher-than-average inflation rate in 2023. This is because low-income households are more affected by high food and energy prices, which rose particularly quickly between 2021 and 2024.

Real Incomes fell in 2022/23 and 2023/24

High inflation meant real median household incomes (adjusted for Consumer Price Index (CPI) inflation) fell in real terms in 2021/22 and 2023/24. Real incomes increased between 2023/24 and 2024/25, with median income increasing by 4.6% and surpassing its 2021/22 level. Income for households with the lowest 10% increased more modestly in 2024/25, by 1.7%.

Material deprivation and food poverty are falling

Material deprivation – the proportion of working-age adults who cannot afford basic items – increased between 2021/22 and 2023/24, then fell between 2023/24 and 2024/25, to 21%. This is a sign that the effects of the period of high cost of living eased in 2024/25.

The percentage of people in food insecure households rose from 7% in 2021/22 to 11% in 2022/23 and 2023/24, then fell to 9% in 2024/25.

Trussell, a food bank charity, reported that in 2025 they provided 2.6 million emergency food parcels, a fall of 12% compared with 2024 due to easing inflation.

Some households have low financial resilience

In July 2026, 20% of adults in Great Britain said they had to borrow more money or use more credit than usual in the last month, compared with a year ago. 23% of adults told the ONS they would not be able to afford an unexpected but necessary expense of £850.

The Financial Conduct Authority found that 24% of adults were finding it difficult to cope financially in May 2024, compared with 28% in January 2024 and 36% in January 2023.

Interest rate rises are affecting mortgage holders

In response to high inflation, the Bank of England’s Monetary Policy Committee raised interest rates in 2021 to 2023. This meant higher mortgage rates. The Bank then lowered interest rates in 2024 and 2025, causing mortgage rates to decrease. The Bank has not changed interest rates in 2026.

The Bank of England estimated in July 2026 that around 750,000 households paying less than 3% interest will remortgage in 2026 and experience an increase of £170 per month in repayments.

Due to the recent increase in rates, the BoE projects that just over 5 million households will see their repayments increase by the end of 2028.

Source: Bank of England series CFMZ6JO, CFMZ6JX, CFMZ6K3