Young adults and lower-income households in the UK are still worse off financially than before the cost of living crisis, even as average disposable income rose slightly in January 2026.
The “cost of living crisis” describes the decline in real disposable income in the UK (that is, household income after taxes and benefits, adjusted for inflation) that has occurred since the end of 2021.
Data from Asda’s income tracker, produced by Cebr, showed average household purchasing power rose by £4.24 ($5.72) year-on-year in January to £261 a week after essentials.
This increase came as headline inflation declined to 3%, its lowest level since March 2025.
Total household income averaged £1,067 per week, of which £649 went towards essential expenses and £157 towards taxes.
Despite the overall improvement, both those under 30 and those between 30 and 49 saw annual declines in discretionary income and remain below pre-crisis levels.
Younger adults had £175 a week available in January, compared to £195 at the peak in March 2021, leaving them around £20 worse off than before the cost of living reduction.
This cohort allocates almost 70% of gross income to essentials and faces the highest average weekly tax burden.
The lowest-income fifth of households also continued to face pressure.
Its 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 an increase in purchasing power in January, with the highest income group recording an annual increase of 1.9%.
The weekly purchasing power gap between the richest and poorest households widened by £18.89 compared to the previous year.
Price growth continued to slow in January.
Food and non-alcoholic beverage inflation moderated to 3.6% and housing and utility costs rose 4.5% year over year, both declining from December.
Vehicle fuel prices decreased by 2.2% annually, helping to curb transportation inflation to 2.7%.
Asda said inflation is expected to move towards the Bank of England’s 2% target for the second half of 2026, which should support discretionary income growth, although weaker profit growth may offset some gains.
Sam Miley, Head of Forecasting and Thought Leadership at Cebr, said: “The Asda Income Tracker appears to have started 2026 similarly to how it ended 2025. Nominal discretionary income has seen modest year-on-year growth, driven primarily by slowing inflation as top-line growth has continued to slow.