Young adults and the UK’s lowest-income households are still financially worse off than before the cost-of-living crisis, even as average disposable income edged higher in January 2026.
The “cost-of-living crisis” describes the decline in the UK’s real disposable incomes – meaning household income after taxes and benefits, adjusted for inflation – that has occurred since late 2021.
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Data from Asda’s income tracker, produced by Cebr, showed average household spending power rose by £4.24 ($5.72) year-on-year (YoY) in January to £261 per week after essentials.
This increase came as headline inflation eased to 3%, its lowest level since March 2025.
Total household income averaged £1,067 weekly, of which £649 went on essential outgoings and £157 on taxes.
Despite the overall improvement, both under-30s and those aged 30-49 recorded annual declines in discretionary income and remain below pre-crisis levels.
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By GlobalDataYounger adults had £175 per week available in January, compared with £195 at the March 2021 peak, leaving them roughly £20 worse off than before the cost-of-living squeeze.
This cohort allocates nearly 70% of gross earnings to essentials and faces the highest average weekly tax burden.
The lowest-earning fifth of households also continued to face pressure.
Their discretionary income fell year on-year, leaving a £71 shortfall between income and essential costs in January.
This group was estimated to be £1.91 per week worse off than a year earlier and has not achieved annual discretionary income growth since January 2025.
All other income quintiles saw purchasing power increase in January, with the highest-income group recording a 1.9% annual rise.
The weekly purchasing-power gap between the richest and poorest households widened by £18.89 compared with a year earlier.
Price growth continued to slow in January.
Food and non-alcoholic beverage inflation moderated to 3.6% and housing and utilities costs rose 4.5% YoY, both easing from December.
Vehicle fuel prices declined 2.2% annually, helping to slow transport inflation to 2.7%.
Asda said inflation is expected to move towards the Bank of England’s 2% target by the second half of 2026, which should support discretionary income growth, although weaker earnings growth may offset some gains.
Cebr Forecasting and Thought Leadership head Sam Miley said: “The Asda Income Tracker looks to have started 2026 in a similar fashion to how it ended 2025. Nominal discretionary incomes have seen modest year-on-year growth, driven primarily by slowing inflation, as gross income growth has continued to slow.
“Considerable scarring remains from the double-digit inflation of the cost-of-living crisis, particularly for those on the lower end of the income distribution, for whom purchasing power is yet to fully recover.”
