Over the last few years, many in the UK have felt the pressure of rising costs—from groceries to gas bills, rent to rail fares. But this isn’t just inflation. The UK is facing a cost of living crisis, where essential costs have risen disproportionately faster than incomes, deepening economic hardship for millions.

The Big Issue newspaper defines the cost of living crisis as “a scenario in which the cost of everyday essentials like energy and food is rising much faster than average incomes.” In this article, we use official statistics to illustrate how stagnating wages and soaring essential costs have combined to erode the financial resilience of UK households—particularly those on lower incomes.

Real wages have not increased since 2008¹

(Real wages refer to wages adjusted for inflation).²

In a healthy economy, we expect productivity to increase which results in real wages growing. Investment and improvements in infrastructure and knowledge means that we can work more efficiently-to produce the same output with fewer inputs, such as hours of work or energy use.

However, UK productivity has fallen far behind other similarly developed countries like Germany and France. This means that the UK’s real wage growth has stagnated. A key reason for this is a lack of investment in improving labor productivity. Additionally, economic shocks such as the 2008 financial crisis and Brexit have hindered progress by creating long-term uncertainty and reducing business confidence.

Household Spending Power is Stagnant or Worse Since 2004

As a result of stagnant wages, real household expenditure - how much each household spends each week - has remained flat for two decades. The average household has the same spending power it did 20 years ago-but it must spend much more of this on essential goods like housing and heating, which we explore below.

The average household spends more than 50% more on particular essential living costs (housing, fuel and power) compared to 2004/05.

In the pie chart above of household expenses, we can see the orange sector which corresponds to housing, fuel and power costs is much bigger now than it was 20 years ago. While average weekly spending remains similar to two decades ago in real terms, a larger share is now consumed by essential costs such as housing, energy, and food. This means households have less flexibility and are more vulnerable to economic shocks—especially those on lower incomes, who spend a higher proportion of their budget on necessities.

Increased essential spending leads to decreased leisure spending like hotels and restaurants

Looking at a more detailed view, we can see that with more money going toward essentials, households are cutting back elsewhere. For example,spending on restaurants, hotels, and recreational activities has declined in real terms.

One notable trend is that food expenditure has stayed roughly the same. But as the next section shows, this doesn’t mean food security has improved or even remained steady—people are simply buying less, switching to cheaper options, or skipping meals altogether.

Food prices have risen 30% since May 2021³

While overall inflation (CPIH) rose around 20% from May 2021 to early 2024, food prices rose over 30%, with some staples like bread, pasta, and dairy products increasing by over 40% ⁴.

This has driven a sharp rise in food insecurity:

• The Food Foundation reported in 2024 that 1 in 5 households with children experienced food insecurity.⁵
• Use of food banks reached record levels, with over 3 million food parcels distributed in 2023/24 by the Trussell Trust.⁶

Energy Prices Surged After the Ukraine Invasion and haven’t returned⁷

The UK’s reliance on gas imports left households vulnerable when Russia invaded Ukraine in 2022. Global energy prices surged, and although government interventions (like the Energy Price Guarantee) mitigated the worst spikes, bills remain high in real terms.

Housing prices have increased⁸

UK house prices have outpaced both wages and inflation. The average house price is now over 9 times average earnings, compared to just 4 times in the late 1990s.

This has created multiple problems:

• Young people are locked out of home ownership unless they receive financial help from family
• Renters, especially in London, face costs that often exceed 40% of their income⁹
• Unaware homeowners face risks of becoming “house poor”, being trapped into spending large portions of their income on mortgage payments due to rising interest rates on large mortgages

The housing crisis amplifies the cost of living crisis by increasing shelter insecurity and undermining economic mobility¹⁰.Again, this disporportionately affects those on lower incomes or with less wealth.

Overall

These issues have not appeared from nowhere and the UK’s cost of living crisis cannot be explained by short-term inflation alone. Stagnant productivity, persistently low real wage growth, and soaring housing costs have all contributed to a system where more people are economically vulnerable—even before global shocks like COVID-19, Brexit, or the war in Ukraine.

While it’s true that around 80% of recent inflationary pressure has been driven by global factors¹¹, the effects have been made worse by domestic policy decisions. Inadequate investment in housing, energy efficiency, and infrastructure has amplified the impact of global trends.

There was little urgency from recent Conservative-led governments to address these root causes. While Boris Johnson’s Levelling Up agenda acknowledged regional inequality, the policy was severly underfunded- the total funding amounted to less than 1% of annual government expenditure, which is far too little to make a significant differences. Because of this lack of action, we’re now at a point where the country desperately needs change.

Core causes of the crisis

In summary, these issues are caused by:

• Stagnant wages since 2008
• Weak productivity with low public and private investment
• Disproportionate increases in essential costs (housing, energy, food)
• Chronic housing undersupply and unaffordable rents
• Low welfare payments that have not kept up with costs

The cumulative impact has been growing inequality, rising poverty, and reduced social mobility.

What Could Change?

Without addressing underlying drivers—such as wage stagnation, underinvestment in infrastructure, and a dysfunctional housing market—the crisis will persist. Potential policy levers include:

• Boosting productivity and (green) investment
• Increasing social housing supply
• Reforming the private rental sector
• Improving food and energy security

Further reading

• Wikipedia article on UK Cost of Living Crisis
• Visualising the 2020s UK cost-of-living crisis-Danny Dorling
• BritMonkey YouTube Documentary