Sir Keir Starmer has staked his political fortunes on a promise to make tangible improvements to UK household finances and deliver “positive change” for voters in 2026.
On several visits around the country this week the prime minister will highlight recent policies designed to ease the cost of living, starting in Berkshire on Monday with the recently announced freeze in rail fares.
“This year I am going further to tackle the cost of living,” he said, noting his family’s financial struggles as he grew up. “Every minute that we’re not talking about the cost of living is a wasted minute.”
Conservative leader Kemi Badenoch said the prime minister was wrong to “expect gratitude”, since his government had imposed a series of tax rises since winning the 2024 general election.
Where are the biggest cost pressures on households, and how is the government seeking to address them?
Housing
Ministers know that housing is the biggest cost for most households, whether through mortgages or rent. But they also know that the biggest factor influencing housing costs is interest rates, which are technically outside their control.
In her November Budget, chancellor Rachel Reeves vowed that the fiscal event would “bring down inflation and provide immediate relief for families”. The government hopes lower inflation will spur the Bank of England to cut interest rates further.
In December, the BoE cut rates for the sixth time since 2024 to 3.75 per cent, helping lower mortgage rates and growth in rental prices.
Annual UK rent growth slowed to 4.4 per cent in November, down from 5 per cent in October and well below a near all-time peak of 9 per cent in December 2024.
The reading marked the first time in more than two years that rents rose less than wages, with earnings growing by an annual rate of 4.7 per cent in the three months to October.
Wage growth has also outpaced house prices. Nationwide’s house price-to-earnings ratio, a measure of affordability, fell to 5.6 in the third quarter of 2025, the lowest in more than a decade.
Martin Beck, chief economist at WPI Strategy, said he expected the trend to continue this year, as “cooling inflation should allow real wages to keep rising even as nominal pay growth slows, supporting housing affordability”.
The rate on a fixed two-year mortgage with 60 per cent loan-to-value dropped to 3.9 per cent on average in November from a peak of 6.2 per cent in summer 2023, according to official data.
But the average rate on the existing stock of mortgages hit 3.9 per cent in November, the highest in more than a decade, reflecting the cumulative impact of interest rates rising before 2024.
Labour has legislated to help renters. Parliament recently passed the Rental Reform act, which imposes new obligations on landlords, ends “no-fault” evictions and introduces minimum safety standards on rented homes.
The government has also announced multiple reforms to the planning system designed to stimulate housebuilding, but they could take years to deliver tangible change.
Energy
From April household energy bills will fall by £150 on average, primarily by the government’s shift in green policy costs from tariffs to general taxation, as announced by Reeves in the November Budget.
But the Institute for Fiscal Studies think-tank has suggested that these savings will be eroded over time by other rising energy costs. Meanwhile, Labour does not appear to be on track to deliver its election promise of a £300 cut to household energy bills by the end of the decade.
Regulator Ofgem’s price cap, which limits how much energy companies can charge homes on default tariffs per unit of gas and electricity consumed, rose marginally to £1,758 in January from £1,755 between October 1 and December 31.
The figure is below the £2,500 energy price guarantee introduced in 2022 that prevented average bills from surging even further after wholesale prices spiralled.
Tomasz Wieladek, chief European macro strategist at investment company T Rowe Price, told the Financial Times’ annual survey of economists that “falling energy prices, lower inflation and lower Bank rate in 2026” meant households “would probably feel more comfortable with reducing their savings”.
Food
Food inflation fell to a seven-month low of 4.2 per cent in November, down from 5.1 per cent in August and a multi-decade high of 19.1 per cent in March 2023. Grocery prices surged in the UK, as in many other countries, following Russia’s full-scale invasion of Ukraine in 2022.
But they remain almost 40 per cent above levels in January 2021, affecting household sentiment, spending decisions and inflation expectations.
Between July and September last year, households spent more on food and drinks than in the same period in 2019. But they purchased 1 per cent fewer goods, reflecting the impact of higher prices.
Henry Cook, economist at MUFG bank, said “concerns around elevated food inflation and the implications for expected inflation have faded”, adding to the case for the BoE to further lower interest rates.
Ahead of the Budget, Reeves promised action to help address high food prices.
She promised a permanent reduction in business rates for retail properties, implying that the companies would pass on those savings to consumers. But in reality the discounts are not as generous as those that had been in place since the pandemic.
Transport
Rail fares in England will be frozen for the first time in 30 years — until March 2027 — after a jump of 5 per cent in early 2025, saving hundreds of pounds for passengers on some of the busiest routes.
The measure applies to fares such as season tickets, peak returns for commuters and off-peak returns between big cities — but not for “unregulated” tickets such as first class and advance purchases.
In the Budget Reeves also froze fuel duty, but only between April and September this year. Beyond that point, the temporary 5p cut introduced by the previous Conservative government will be reversed in stages.
Ministers have also announced a 3p a mile electric vehicle tax, to be introduced from 2028.
Headline inflation and incomes
Inflation fell more than expected to 3.2 per cent in November, down from 3.6 per cent in October and well below its 41-year high of 11.1 per cent in October 2022.
Analysts polled by Consensus Economics expect a further decline this year, taking inflation close to the BoE’s 2 per cent target by December.
Suren Thiru, economics director at the ICAEW, said lower energy bills, food and fuel costs meant the UK would “no longer be an international inflation outlier” by mid-2026.
Wage growth has continued to rise at a steady pace, helped by the increase in the national living wage. With slowing price growth, total wage growth outpaced inflation uninterruptedly between mid-2023 and late 2025.
But Reeves’ Budget extension to the freeze in income tax thresholds will drag more households into higher tax brackets and some into paying the levy for the first time. Unemployment is also rising and set to rise further as businesses adapt to higher costs.
“The gap between pay growth and inflation will continue to narrow, the jobs market is fragile, and the ongoing threshold freeze means that taxes will continue to eat into wage increases,” said Andrew Goodwin, chief UK economist at consultancy Oxford Economics.