UK household continue to face mounting financial pressures as living costs remain stubbornly high despite inflation cooling from its peak.
Overall UK household costs, as measured by the Household Costs Index (HCI), rose by 2.6% in the year to March 2025, while many families find themselves paying significantly more for essentials compared to previous years.
The average UK household now faces approximately £125 more in monthly expenses compared to pre-crisis levels, driven primarily by persistent increases in housing, energy, and food costs.
This burden falls disproportionately across different household types, with private renters and families with children experiencing the steepest increases.
The Current State of UK Inflation and Living Costs
Inflation Trends and Trajectory
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.0% in the 12 months to May 2025, compared with 4.1% in the 12 months to April.
While this represents a gradual decline from the peak inflation rates that exceeded 11% in late 2022, the cumulative effect of years of price increases continues to impact household budgets significantly.
Over the three-year period between May 2021 and May 2024, UK consumer prices increased by 20.8% in total.
This substantial cumulative increase explains why many households still feel financially stretched despite lower headline inflation rates.
The Reality Behind the Numbers
In April 2025, 22% of adults in Great Britain said they had to borrow more money or use more credit than usual in the last month, compared to a year ago.
This statistic underscores the ongoing financial stress experienced by UK households, highlighting that while inflation may be moderating, the impact of previous price increases continues to strain family budgets.
Understanding how different factors contribute to these cost increases helps explain why households are struggling to adapt to the new financial reality.
Key Drivers of Household Cost Increases
Housing Costs: The Primary Burden
Housing represents the largest component of increased household expenses, with different tenure types experiencing varying levels of pressure.
Private Rental Market Pressures
Private renter households had the highest annual inflation rate of 3.6% in March 2025, reflecting rising private rental payments.
This demographic faces the steepest cost increases, as rental prices continue climbing at rates well above general inflation.
The rental market’s role in driving overall cost increases cannot be overstated. Private rents and social rent payments contributed the most to the difference in inflation rates in the year to March 2025.
Mortgage and Homeowner Impacts
While homeowners with mortgages face lower inflation rates than renters, they still contend with significantly higher borrowing costs.
Interest rates were raised at 14 consecutive policy meetings from 0.1% in December 2021 to 5.25% in August 2023.
This dramatic increase has translated into substantially higher monthly mortgage payments for millions of households.
Energy Bills: Persistent High Costs
Energy costs remain a critical driver of household expense increases. Typical household energy bills increased by 54% in April 2022 and 27% in October 2022.
Lower wholesale prices have led to falls in prices, but current bills are still 43% above their winter 2021/22 levels.
Energy bills went up in April 2025. Ofgem’s energy cap means average households are now paying an average of £1,849 each year for their electricity and gas from January.
This represents a substantial ongoing burden for household budgets, particularly affecting lower-income families who spend a higher proportion of their income on energy.
Food Price Inflation: Essential Spending Under Pressure
Food costs continue to climb, creating particular hardship for families. Food and non-alcoholic beverages prices rose by 4.4% in the 12 months to May 2025, up from 3.4% in the 12 months to April.
This acceleration in food price inflation has caught many households off guard, particularly after a period of relatively stable increases.
The cumulative impact of food price increases has been dramatic. Over the three years between May 2021 and May 2024 food prices rose by 30.6%.
It previously took over 13 years, from January 2008 to May 2021, for average food prices to rise by the same amount.
Differential Impacts Across Household Types
Income-Based Variations
The impact of cost increases varies significantly across different income levels, though perhaps not in the way many might expect.
The all-households inflation rate has followed the sixth income decile most closely over the past 12 months; costs for these households rose 2.5% in the year to March 2025, compared with rises of 2.7% for high-income households (decile 9) and 2.5% for low-income households (decile 2).
Family Composition Effects
Families with children face particular challenges in the current cost environment. Non-retired households continued to experience a higher annual rate of inflation (2.8%) in March 2025 than retired households (2.1%). This disparity reflects different spending patterns, with working-age families typically allocating larger portions of their budgets to categories experiencing above-average inflation.
Age and Employment Status Considerations
The data reveals clear differences between household types based on life stage and employment status. The annual inflation rate for households with children fell from 3.1% in December 2024 to 2.8% in March 2025; for households without children, it declined from 2.8% to 2.6% over the same period.
Household Cost Breakdown by Category
| Expense Category | Average Monthly Increase | Primary Drivers | Most Affected Households |
|---|---|---|---|
| Housing & Utilities | £45-65 | Rent increases, energy costs | Private renters, young families |
| Food & Beverages | £25-35 | Supply chain costs, wage inflation | Larger households, low income |
| Transport | £15-25 | Fuel prices, vehicle costs | Suburban/rural households |
| Healthcare & Personal | £10-15 | Service cost inflation | Older households, chronic conditions |
| Education & Childcare | £20-30 | Staffing costs, facility expenses | Families with children |
| Total Average | £115-170 | Combined pressures | Varies by household type |
Looking Forward: Economic Outlook and Household Adaptation
Government and Policy Response
The current economic environment requires careful navigation by both policymakers and households. The Office for Budget Responsibility (OBR) predicts that real household disposable income – and consequently our living standards – will grow by an average of just over 0.5% a year until 2029.
Household Financial Resilience
Despite ongoing challenges, there are some positive indicators for household finances. Annual growth in employees’ average regular earnings, excluding bonuses, was 5.9% between November 2024 to January 2025 – which is the most recent period for which figures are available. This wage growth above inflation rates provides some relief for employed households.
However, financial stress remains evident. 23% of adults told the ONS they would not be able to afford an unexpected but necessary expense of £850, highlighting the limited financial resilience many households maintain despite improving economic conditions.
Long-term Household Financial Health
The path toward financial stability requires both economic recovery and household adaptation. Real household incomes fell again between 2022/23 and 2023/24, by 2%, despite lower inflation. This demonstrates that even with moderating price increases, the cumulative impact of the cost-of-living crisis continues to affect household prosperity.
Understanding these dynamics helps households make informed decisions about spending priorities and financial planning. While the acute phase of the cost-of-living crisis may be easing, the structural changes in household expenses require ongoing attention and adaptation strategies.
The £125 monthly increase in household costs represents more than just numbers—it reflects the real challenges facing UK families as they navigate a fundamentally changed economic landscape. Successful household financial management in this environment requires understanding these cost drivers and planning accordingly for continued economic uncertainty.
Frequently Asked Questions
Q: Is the cost of living crisis over in the UK? A: While inflation has fallen significantly from its 2022 peak, the cumulative effect of price increases means households still face substantially higher costs than before the crisis began.
Q: Which households are most affected by cost increases? A: Private renters and households with children experience the highest inflation rates, while retired households generally face lower cost pressures.
Q: Are wages keeping up with rising costs? A: Current wage growth of 5.9% exceeds inflation rates, providing some relief, though many households are still recovering from previous periods when costs outpaced earnings.