Have Real Wages Recovered Since the Cost of Living Crisis?

Real wages measure what your pay can actually buy once inflation is taken out. The picture since the cost of living crisis began is mixed. Real wages fell by 0.6 per cent in the fourth quarter of 2021, and the Resolution Foundation projected in January 2023 that they would not return to their Q1 2022 level until the end of 2027¹. More recently, real wages grew by 5% on one measure, and UK households saw a real-terms increase of £35.10 (5%) per week in the financial year ending 2025³.

But the recovery is uneven. The poorest fifth of households saw a 10.1% real-terms decrease in wages and salaries in the financial year ending 2024, while the richest fifth saw a 3.6% real-terms decrease¹. The Joseph Rowntree Foundation projects that real wages in 2029 will have risen by less than 6% since 2007, 22 years earlier⁵.

Inflation stood at 3.1% in the 12 months to August 2026, up from 2.9% the previous month⁶. That is well below the peaks of the cost of living crisis, but it still erodes pay. Whether real wages have "recovered" depends on which period you measure from and which households you look at.

Real wages: pay growth after inflation is taken out

Nominal wages are the figure on your payslip. Real wages are that figure adjusted for inflation, so they show what your pay can buy. The distinction matters because a pay rise can be a real-terms pay cut if prices rise faster.

The ONS publishes both. In the financial year ending 2024, mean equivalised original income for UK households fell by £1,400 (2.8%) in real terms, even though nominal incomes rose¹. The previous year, average equivalised original income fell by £2,980 (5.9%) in real terms². Those are large sums, and they explain why many households felt worse off even when their pay went up.

The pattern has not been uniform. Since June 2023, real wages have begun rising again, with 1.4% annual growth on one measure⁸. In the financial year ending 2025, UK households saw a real-terms increase of £35.10 (5%) per week in expenditure, and transport spending rose by £8.10 (9%) per week in real terms⁴. Package holidays abroad rose by £4.10 (14%) in real terms⁴.

How inflation reduces what your pay buys

Inflation is the rate at which prices rise. When inflation is 3.1%, prices are rising at that annual rate, and pay that rises by less than the inflation rate falls in real terms. In the financial year 2022/23, compared with the Consumer Price Index, real earnings fell by 3%¹. The real value of take-home pay has been falling since May 2022².

The effect compounds. The Bank of Scotland's guidance illustrates this: at 2.5% inflation, £1,000 would be worth £610 after 20 years⁹. That is not a prediction, but it shows how inflation erodes value over long periods.

For households, the squeeze shows up in different ways. In the financial year ending 2025, net rent increased by £7.00 (14%) per week in nominal terms⁴. Transport costs rose in real terms. The Household Costs Index, which tracks the actual costs different household groups face, rose by 2.8% for all households in the year to June 2026¹⁰.

The ONS compiles its consumer price indices from a large and representative sample of over 760 goods and services, collected from approximately 20,000 outlets within the UK¹¹. Rates of change for CPIH and CPI are calculated from unrounded index levels, while RPI rates are calculated from the rounded published indices¹¹. That methodological difference is one reason the measures can diverge.

The cost of living squeeze: what inflation has done to household costs

The cost of living crisis saw inflation reach levels not seen for decades. In the US and Euro Area, inflation peaked at 9% and 10.6% respectively¹². The UK saw similar pressures. By November 2024, 85% of UK adults felt the cost of living was one of the most important issues facing the country, second only to the NHS at 86%¹³.

The squeeze was not felt equally. The poorest fifth of households saw a 10.1% real-terms decrease in wages and salaries in the financial year ending 2024, compared with a 3.6% decrease for the richest fifth¹. The OBR noted a 4.5 per cent year-on-year decline in the real value of unemployment-related benefits in 2022-23, the largest fall since annual uprating began half a century ago¹⁴.

Some support was provided. The National Living Wage rose 6.6 per cent to £9.50 in April 2022, which helped restore some of the lost value, though that was soon eroded¹⁵. The Fair Repayment Rate is estimated to save supported households on average £420 per year¹⁶.

Inflation now: back up to 3.1% after falling

CPI inflation rose to 3.1% in the 12 months to August 2026, up from 2.9% the previous month⁶. On a monthly basis, CPI rose by 0.5% in August 2026, compared with a rise of 0.3% in August 2025⁶. Core CPI, which excludes energy, food, alcohol and tobacco, was unchanged at 2.6%⁶.

The UK's inflation rate was higher than the first estimates for France (2.7%) and Germany (2.9%) in August 2026⁶. Transport, particularly motor fuels, made the largest upward contribution to the August rise¹⁷.

Earlier in 2026, inflation had been lower. CPI was 2.6% in the 12 months to March 2025⁴. It was 3.3% in March 2026, then fell to 2.8% in April 2026¹⁸. By June 2026, the CPI services annual rate had eased from 3.7% to 3.6%¹⁹. The CPI all-services index rose by 3.4% in the 12 months to July 2026, down from 3.6% the previous month²⁰.

The Bank of England held the base rate at 3.75% for the sixth consecutive meeting in September 2026, despite CPI inflation rising to 3.1% in August²¹. The Bank's guidance states that a moderate level of inflation is healthy for the economy as it helps drive economic growth²².

Have real wages recovered to where they were?

The answer depends on the measure and the period. On one measure, real wages grew by 5%³. On another, UK households saw a real-terms increase of £35.10 (5%) per week in the financial year ending 2025⁴. Since June 2023, real wages have begun rising again, with 1.4% annual growth⁸.

But the Resolution Foundation projected in January 2023 that real wages would not return to their Q1 2022 level until the end of 2027². The Joseph Rowntree Foundation projects that real wages in 2029 will have risen by less than 6% since 2007, 22 years earlier⁵. The OBR projects only 0.5% real wage growth per year in the medium term⁷.

The distribution matters. The poorest fifth of households saw a 10.1% real-terms decrease in wages and salaries in the financial year ending 2024, while the richest fifth saw a 3.6% decrease¹. The financial year ending 2023 saw a real-terms decrease of £2,980 (5.9%) in average equivalised original income².

What rising prices mean for your savings and budget

Inflation affects savings as well as pay. If your savings account pays less than the inflation rate, your money is losing value in real terms. The Bank of Scotland's guidance illustrates the principle: at 2.5% inflation, £1,000 would be worth £610 after 20 years⁹.

Tax complicates the picture. Basic rate taxpayers get a Personal Savings Allowance, but those earning £50,271 to £125,140 get up to £500, and additional rate taxpayers get none²³. If you already send a Self Assessment tax return, you report any interest earned on savings there²⁴. From 6 April 2027, the savings higher rate will be increased by 2 percentage points to 42%²⁵.

For households on low incomes, support is available. In Wales, local authorities can provide support to households struggling with the rising costs of living, including help with heating costs²⁶. The Fair Repayment Rate is estimated to save supported households on average £420 per year¹⁶. National Debtline lists organisations that can help with cost of living pressures in England and Wales²⁶.

The minimum wage rose 4.1% to £12.71 per hour for eligible workers aged 21 and over from 1 April 2026²⁷. The basic State Pension increases every year by the highest of earnings growth in Great Britain, CPI price growth in the UK, or 2.5 per cent²⁸.

Where to get help

For free, impartial help with money problems, MoneyHelper is the government-backed service²³. National Debtline provides guidance on cost of living support in England and Wales²⁶. In Wales, local authorities can provide discretionary support²⁶. The Financial Ombudsman Service can help if you have a complaint about a financial firm.

For help with court fees, you may be eligible if you have a low income and less than £4,250 in savings²⁹. The UK House Price Index is calculated by the ONS and Land & Property Services/Northern Ireland Statistics and Research Agency³⁰.