LONDON, Dec. 28, 2025 — New economic forecasts paint a troubling picture for Britain’s households, as the cost-of-living crisis evolves from a short-term shock into a structural decline in living standards. According to the latest analysis by UK think tanks, inflation, sluggish growth and tax pressures are eroding real incomes and pushing living standards lower than before the pandemic.

The Centre for Economics and Business Research (CEBR) warns that Britain’s long-running cost-of-living squeeze — driven by higher prices for essentials and weak wage growth — is now entrenched. This trend has left many households poorer in real terms, undermining consumer confidence and widening the gap with economic peers.

Rising Prices Outpacing Incomes

Household budgets have been under pressure as prices of essential goods and services — including food, energy and housing costs — rise faster than incomes. This has resulted in a significant drop in real disposable income for many Britons, with some studies showing families having less spending power now than several years ago.

Experts point to a combination of global inflationary pressures and domestic challenges — such as labour shortages linked to Brexit and continued high taxes — as contributors to the ongoing crisis. While wages have seen some increases, they have generally failed to keep pace with the rising cost of living.

Slow Growth and Economic Strain

The UK’s broader economic performance has compounded the squeeze on living standards. Recent data shows that GDP growth has slowed sharply, with minimal increases in output in the latter part of 2025 compared with previous quarters. Business investment and hiring have been sluggish, contributing to a dampened economic outlook for early 2026.

Analysts also highlight that higher taxes and fiscal policies aimed at tackling fiscal deficits have further reduced disposable incomes, especially among middle- and lower-income households. Additionally, savings rates have declined as consumers struggle to balance rising expenses with reduced purchasing power.

Impact Across Households and Regions

The decline in living standards is felt unevenly across the UK. Lower-income families face the sharpest drops in real income, as they spend a larger share of their budgets on essentials. Some forecasts suggest that if current trends continue, living standards may remain below pre-pandemic levels for several more years.

The cost-of-living crisis has also affected consumer behaviour. Retail footfall fell during key shopping periods as households tightened spending, and many small businesses have reported weak demand.

Looking Ahead: Structural Challenges and Policy Options

Economists argue that addressing this deepening crisis will require more than short-term fixes. They point to structural issues such as low productivity growth, persistent inflation and demographic shifts that have long weighed on British living standards. Without targeted policies to boost growth, productivity and real wages, the UK risks falling further behind its peers.

In summary, Britain’s cost-of-living crisis has evolved into a structural challenge that is reducing household incomes and eroding living standards. The combination of high prices, weak growth, and fiscal pressures underscores the need for comprehensive policy responses to revive economic prospects and restore living standards for UK families.