Workers face fresh cost of living squeeze says new report

Research by the Work Foundation at Lancaster University says many families remain financially vulnerable after several years of high inflation, leaving little room to absorb another increase in everyday costs.

The UK perspective: Wage growth fails to keep pace

The warning from Lancaster University arrives as higher energy and fuel prices, linked to ongoing instability in the Middle East, threaten to erode workers' spending power. A survey of 1,000 senior business leaders found that just over one in five employers expect to offer above-inflation pay rises during 2026. Furthermore, one in seven employers are not providing any cost-of-living support for workers.

Media additions

"A sluggish economy and ongoing global instability risks further intensifying cost-of-living pressures that workers across the country are already facing. Repeated periods of stagnant wage growth and sustained increases in the cost of essentials have left many households with little financial resilience to cope with any further economic shocks."

Ben Harrison, director of the Work Foundation at Lancaster University

Harrison noted that while many employers are actively seeking ways to assist staff, they are simultaneously managing their own rising operational costs.

The US affordability crisis: A structural failure

Across the Atlantic, a report from the Brookings Institution indicates that 45.5% of U.S. Households did not earn enough to cover their necessities in 2024. Researchers noted that a mere $1,000 increase in annual living costs would leave an additional 3 million households unable to make ends meet. This precarity is driven by a persistent gap between inflation and wage growth; in 2024, national wages saw a 1.3% increase compared to 2.9% inflation. While higher-income households saw pay rise 6% in April 2026 compared to the previous year, the boost for lower earners was just 1.5%.

Energy costs have become a primary driver of this financial strain. According to data compiled by the Century Foundation, average energy utility bills in the US exceed $260 per month, with averages in the Northeast—including New York—surpassing $300. The number of households with severely overdue utility debt rose by 3.8% in the first six months of US President Donald Trump's second term, the analysis of consumer credit data, compiled by the Century Foundation and Protect Borrowers, found. Many clients of the Public Utility Law Project of New York now face utility debts upwards of $6,000, compared to a range of $400–$900 before the pandemic.

Drivers of rising costs in the US

• Energy demand: Technology companies, including Alphabet and Amazon, are ramping up their investments in AI infrastructure. Data centres require massive amounts of electricity, creating grid strain that pushes up prices for residential consumers.
• Infrastructure and Policy: Analysts point to the rollback of clean energy projects as contributors to higher utility costs. A report from the climate advocacy group Climate Power cites the Trump administration's cancellation of projects that would have produced enough electricity to power the equivalent of 13 million homes. The gutting of clean energy projects has contributed to a 13% jump in electricity bills since Trump returned to the White House, the report found.
• Market dynamics: Natural gas, a crucial component for nearly half of US electricity generation, has seen price increases over the past year.

Political fallout and public sentiment

Consumer sentiment dropped to a near record low in November, going from 71.8 out of 100 in November 2024 to 51, according to the University of Michigan’s Surveys of Consumers. A Reuters/Ipsos poll found 65% of respondents disapproved of the president’s handling of the cost of living, while Marquette University research recorded a 72% disapproval rating.

In response to political pressure and the results of recent state elections, the administration has shifted its messaging to focus on affordability. Potential interventions floated include extending 30-year mortgages to 50 years to lower monthly payments and a proposed $2,000 dividend funded by tariff revenue, though members of Congress have expressed skepticism regarding the impact of such spending on inflation.

What to watch next

As households head further into the winter months, the National Energy Assistance Directors Association expects heating costs to jump 9.2%, driven by cold weather and rising fuel prices. While some states, such as Virginia, are exploring regulatory shifts to require data centres to pay higher utility rates to shield families, analysts warn that relief will take time to materialize. Residential energy prices are expected to remain elevated for the foreseeable future.