Is the UK Cost of Living Crisis Really Ending in 2025

UK inflation has dropped sharply from its double digit peak, but many households still feel under pressure. In 2025, the economic story is more complex than a single headline number. Prices are rising more slowly, wages are finally growing in real terms, yet rents and borrowing costs remain elevated. This raises an important question – is the cost of living crisis really ending, or has it simply entered a new phase?

What the Latest Inflation Numbers Actually Show

According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) rose by 3.8 percent in the 12 months to August 2025, unchanged from July. The broader CPIH measure, which includes owner occupiers housing costs, was 4.1 percent.

Source: ONS – Inflation and Price Indices

This is a big improvement compared with 2022 and 2023, when inflation was above 10 percent at its peak. However, 3.8 percent is still almost double the Bank of England s 2 percent target. Prices are still going up, just more slowly than before.

An analysis by the House of Commons Library in September 2025 notes that recent increases in food prices and administered prices, such as regulated bills, are a key reason inflation has not yet returned to target.

Source: UK Parliament – Economic Update on Inflation 2025

Bank Rate Is on Hold but Still High by Recent Standards

On 6 November 2025, the Bank of England s Monetary Policy Committee voted to hold the base rate at 4 percent, after a series of cuts from its post pandemic peak but still well above the near zero rates that prevailed for much of the 2010s.

Source: Bank of England – Interest Rate Decision November 2025

The Bank signalled that it needs more evidence that inflation is on a firm path back to 2 percent before cutting further. Business groups such as the British Chambers of Commerce expect the rate to remain at around 4 percent through most of 2025, easing only gradually in 2026.

Source: British Chambers of Commerce – Will UK Inflation Stay Higher for Longer

For households, this means mortgage and loan costs are still significantly higher than a few years ago, even though rate rises have paused.

Rents Are Still Rising Faster Than General Inflation

While overall inflation has eased, housing costs continue to put pressure on many tenants. ONS figures show that average UK monthly private rents increased by 5.5 percent in the 12 months to September 2025, reaching an average of £1,354 per month.

Source: ONS – Private Rent and House Prices October 2025

Rents are rising fastest in some regions and among new tenancies. Independent indices, such as the HomeLet Rental Index, report a similar average rent of around £1,345 in October 2025.

Source: HomeLet – Rental Index October 2025

For many renters, real world inflation feels much higher than the headline CPI figure because housing makes up a large share of their monthly spending.

Are Wages Finally Beating Inflation

There is some good news on pay. The ONS Annual Survey of Hours and Earnings shows that median weekly earnings for full time employees were £766.60 in April 2025, up 5.3 percent in cash terms from a year earlier. After adjusting for inflation using CPIH, that still represents a real pay rise of about 1.1 percent.

Source: ONS – Employee Earnings in the UK 2025

Monthly average earnings data also show nominal wage growth of around 4.6 to 5 percent in mid 2025, with real total pay growing just over 1 percent.

Source: ONS – Average Weekly Earnings October 2025

At the same time, the voluntary real living wage is set to rise by nearly 7 percent, to £13.45 per hour across the UK and £14.80 in London, according to the Living Wage Foundation. This will benefit almost half a million low paid workers.

Sources: Guardian – Real Living Wage Rise 2025 and Financial Times – Real Living Wage Increase

Taken together, these figures suggest that, on average, wage growth is finally running slightly ahead of inflation. But averages can hide big differences between sectors, regions, and income groups.

Why Many Households Still Feel Under Pressure

Even with real wage growth turning positive, several factors continue to squeeze budgets:

1. Price levels are permanently higher. Even if inflation falls, prices rarely go down. Households are living with the accumulated effect of several years of high inflation.
2. Rents and housing costs are rising faster than overall prices. Private rents are still growing at above 5 percent a year, outpacing headline CPI.
3. Debt servicing costs are elevated. Households with variable rate mortgages, personal loans, or credit card balances are paying more each month because of the higher base rate.
4. Essential categories drive most spending. Lower and middle income households spend more of their income on food, housing, energy and transport – categories that have seen some of the largest price increases since 2021.

Is the Crisis Ending or Just Changing Shape

From a narrow macroeconomic perspective, the worst phase of the cost of living crisis appears to be over. Inflation has more than halved from its peak and real wages are finally growing again. The risk of a wage price spiral has eased, and expectations are that interest rates will eventually fall if inflation continues to decline.

But at the household level, many people are still adjusting to a permanently more expensive world. Those renting, refinancing mortgages, or carrying unsecured debt may not feel any meaningful relief yet.

In that sense, the crisis has moved from a sudden shock of rapidly rising prices to a slower, structural squeeze caused by high absolute price levels and elevated borrowing costs.

What to Watch Next

Over the next 12 to 18 months, three indicators will be crucial for judging whether the cost of living pressure is truly easing:

1. Inflation returning near 2 percent and staying there. That would open the door for the Bank of England to cut rates more decisively.
2. Rent inflation slowing more significantly. If rental growth remains above 5 percent, renters will continue to face their own private cost of living crisis.
3. Sustained real wage growth. If pay packets keep growing faster than prices, households can begin to rebuild savings and reduce debt.

Until these three conditions are met at the same time, many people in the UK are likely to feel that the cost of living crisis has not really ended – it has only changed form.

References:

• ONS – Inflation and Price Indices
• ONS – Private Rent and House Prices October 2025
• ONS – Employee Earnings in the UK 2025
• ONS – Average Weekly Earnings October 2025
• Bank of England – Bank Rate Decision November 2025
• UK Parliament – Economic Update on Inflation 2025
• HomeLet – Rental Index
• Guardian – Real Living Wage Rise 2025
• Financial Times – Real Living Wage Increase