Figures from Asda’s Income Tracker compiled by CEBR reveal the cost of an essential basket of goods and services rose by 4.2% year-on-year in January – marking the fastest rise since March 2024.
Annual inflation is behind recent price increases, having risen to a 10-month high of 3% in January. This was driven largely by faster price rises in transport, as well as food and non-alcoholic beverages – with prices of staple products such as bread, cereals and meat products particularly impacted by inflation.
In January, the average household disposable income reached £254 per week – an increase of £25.74 per week year-on-year. However, CEBR noted that while gross income growth remained above inflation, its slowdown in January to 5.2% will add further constraints to household budgets.
The lowest-earning households (approximately 20% of all UK households) were most affected by rising inflationary pressures. This group faced a shortfall of £69 per week in January, meaning their take-home pay was not enough to cover bills and essentials. Younger working households are set to be the hardest hit, as they typically earn less yet still face the same essential costs as other households.
Inflation is predicted to remain above target for the rest of the year, with the increases in the energy price cap likely to sustain these elevated inflation rates. Ofgem announced yesterday that the typical household energy bill will rise by £111 per year from April.
Despite the uptick in inflation, CEBR noted that there is some cause for optimism, as household incomes continue to grow at a faster rate than prices are increasing.
Sam Miley, Managing Economist and Forecasting Lead at CEBR, said: “Inflation accelerated to a near-term high of 3.0% in January. Given that the change in the rate of price growth was particularly stark across essential spending categories, such as food and transport, households have experienced some pressure on their costs at the start of the year.
“Nevertheless, household incomes are growing at a faster pace than prices, and this trend is expected to persist throughout 2025 as households continue to recover from the worst of the cost-of-living crisis.”
