UK households are £2,900 a year worse off than they would have been if inflation had remained at normal levels over the past five years, new research has found. The prolonged cost-of-living crisis has left families facing higher bills, falling real incomes and growing debts.
According to the Resolution Foundation, Britain has experienced the equivalent of 13 years of normal inflation in just five years. Its latest report, Counting the cost, published on 8 October 2026 and funded by the Nuffield Foundation, examines the financial impact of successive economic shocks, including the pandemic and conflicts in Ukraine and the Middle East.
Five Years of Inflation Have Eroded Household Incomes
The Resolution Foundation found that prices were nearly 30 per cent higher in August 2026 than in July 2021, following a period in which inflation peaked at 11.1 per cent. The increase has significantly affected household purchasing power, particularly as income growth has failed to keep pace.
For a typical working-age household, real annual income in 2026-27 is estimated to be £2,900, or 7.9 per cent, below what it would have been had inflation remained at 2 per cent throughout the five-year period.
The report also found that median income after housing costs among non-pensioners is expected to fall by 1.3 per cent, equivalent to £450, between 2020-21 and 2026-27. Households at the 25th income percentile face a 1.2 per cent decline, while those at the 75th percentile are expected to see growth of just 0.3 per cent.
Energy costs have been a major contributor. Household energy bills more than doubled by autumn 2022, while food inflation reached almost 20 per cent in March 2023. Services inflation subsequently climbed to 7.4 per cent in July 2023. Together, food and household energy accounted for a quarter of the overall increase in prices during the period examined.
Rising Energy Costs Leave Poorer Households Struggling With Essential Bills
The financial consequences have been particularly severe for lower-income families, whose spending is more concentrated on essentials. According to the Resolution Foundation, non-housing costs have risen by around one-sixth more for the poorest tenth of households than for the wealthiest tenth since before the pandemic.
In 2022-23, an additional 1.7 million households reported being unable to keep their homes adequately warm compared with the previous year. Of these, 950,000 belonged to the poorest 40 per cent of the population.
Financial pressures have also translated into unpaid bills. By March 2026, 18 per cent of households in the poorer half of the country were behind on priority payments, including energy, water, council tax and rent, compared with 10 per cent in September 2020.
As reported by the Manchester Evening News, the findings arrive ahead of Chancellor John Healey’s first Budget, amid calls for further assistance with household costs. James Smith, chief economist at the Resolution Foundation, warned that repeating the broad financial support introduced in 2022 would be unaffordable. The Energy Price Guarantee alone cost more than £20 billion.
Instead, Smith argued that future assistance should focus on families experiencing the greatest hardship, particularly through their energy bills. The findings leave ministers facing demands for targeted relief at a time when rising borrowing costs are placing additional pressure on public finances.
