The purchasing power debate is often framed as a tug of war between prices and pay. When inflation cools, wages sometimes fade too, and the net effect on real incomes becomes hard to read. In 2025 the signals look clearer than they did a year ago. Headline inflation has stopped rising, pay packets are still growing in cash terms, and real earnings are finally positive on mainstream measures. Yet the recovery is uneven across sectors and regions, and services inflation remains sticky. This article gathers the latest numbers, explains why inflation has stalled rather than returned to target, and lays out a practical way for managers and policy teams to track the balance between prices and pay with simple, shareable visuals.
What the latest data actually show
In September 2025 the UK Consumer Prices Index (CPI) increased by 3.8 percent on the year, unchanged from August. The broader CPIH measure, which includes owner occupiers’ housing costs, rose by 4.1 percent. Services inflation held at 4.9 percent, highlighting the stickiness of domestically driven prices even as goods inflation eased. These are the anchor facts for any discussion about purchasing power.
Key point. Price growth has stopped accelerating, but services inflation near 5 percent keeps the overall rate well above the 2 percent target.
On the pay side, regular earnings excluding bonuses rose by about 4.8 percent in the three months to July 2025. Adjusting for inflation, real regular pay increased by roughly 0.7 percent on a CPIH basis and about 1.2 percent on a CPI basis. That is a meaningful shift from the outright real-terms falls seen in 2022.
Key point. Real pay is positive on both CPI and CPIH definitions, which is the minimum condition for a purchasing power revival.
A cross-check from the Annual Survey of Hours and Earnings adds texture. Median weekly earnings for full-time employees in April 2025 were £766.60, up 5.3 percent in cash terms and 1.1 percent in real terms using CPIH. Gains were broad based across major occupations and industries.
Key point. The typical full-time worker saw real gains in spring 2025, not only the high paid or a single sector.
Why has inflation stalled rather than dropped back to 2 percent?
Inflation’s recent behaviour reflects offsetting forces. Energy base effects have faded. Food inflation has cooled from its peak. But services prices are still shaped by high labour costs, capacity constraints and the slow feed-through of rents and administered prices. The Bank of England’s 2025 Monetary Policy Reports describe this as a persistence story: even as headline inflation retreats, domestically generated inflation can remain elevated while the labour market rebalances.
Key point. The path from 4 percent to 2 percent is slower than the fall from the double-digit peaks because services inflation is anchored in wages and rents.
Forward-looking business surveys fit the same picture. October’s flash PMI from S&P Global pointed to slightly firmer activity and further cooling in price pressures, suggesting less drag from input costs and a bit more room for firms to plan, invest and reorganise. It is not GDP, but it is a useful temperature check.
Key point. Leading indicators hint at stabilisation, not a boom, which is consistent with slowly improving real incomes.
Are real wages back for good, or is this a false start?
The short answer is that real wages are growing modestly, but the margin is thin and vulnerable to shocks. ONS data show real regular pay at around 0.7 percent on CPIH and 1.2 percent on CPI in the latest three-month window, which is progress. Yet the composition of pay growth matters. Earlier in 2025 the strongest regular pay gains were in wholesaling, retailing, hotels and restaurants, and construction, while finance and business services slowed. A broader rebalancing is helpful for lower-paid workers, but sector-specific softness can cap aggregate momentum.
Key point. Real wages are up, but gains are not uniform across sectors. Sector mix will determine whether the improvement endures.
At the household level, distributional work from the Resolution Foundation reminds us that taxes, benefits and housing costs interact with pay. Frozen tax thresholds and Council Tax changes can eat into cash gains, while rents and mortgages shape disposable income. In other words, a small real-pay rise does not translate one-for-one into spending power for every family.
Key point. Purchasing power depends on take-home income and bills, not pay alone. Real wage growth can be diluted by taxes and housing costs.
Who is gaining and who is losing so far in 2025?
Patterns differ by sector, income tier and region.
- Sectors. Hospitality and consumer-facing services led nominal pay growth earlier in the year, which helps lower-paid workers where hours are stable. Finance and business services were softer, reflecting a cooler corporate cycle.
- Income tiers. Think-tank estimates show many low to middle-income households face tighter budgets once tax and housing bills are included, implying slower improvements in living standards than headline pay would suggest.
- Regions. ASHE figures confirm real gains across most major occupational groups. Regional dispersion remains, but the broad-based rise in median weekly pay is a positive sign after two difficult years.
Key point. The average is improving, but the median household may still feel squeezed depending on rent, mortgage and local labour-market conditions.
What should leaders watch in the next two quarters?
Three indicators will tell us whether the purchasing power rebound becomes durable.
- Services inflation. A steady decline from roughly 4.9 percent would signal that wage-price persistence is easing.
- Real pay on CPIH. Sustained growth near or above 1 percent would build a buffer for households.
- Investment and hiring intentions. PMI detail on input costs, selling prices and employment can confirm whether firms are passing fewer cost rises through to customers.
Key point. A genuine recovery in purchasing power requires softer services inflation, steady real pay and firm-level signals that cost pressures are fading.
Data-viz quick win: make the prices-versus-pay story legible
Complex dashboards are not always the answer. Most managers, union reps and local officials need a one-page view they can read in a minute. Here is a simple approach for weekly or monthly briefings.
- Collect two series: CPI or CPIH year-on-year, and regular pay growth year-on-year from the ONS bulletins.
- Create a single picture: place both series on one axis with clear labels for the latest month and the three-month average.
- Annotate two inflection points: when real pay turned positive, and when services inflation began to cool.
- Share as an image: export the chart for shop-floor screens or email briefings.
If you are working from screenshots of two separate charts, merge images so that prices and pay sit side by side with a single legend. A lightweight tool such as Adobe Express is more than adequate to lay out the visual, add a short caption, and keep font sizes consistent across slides. If you distribute materials to teams that do not use the same software, you can also merge images into a simple PDF so that nothing reflows on mobile.
Key point. A single annotated visual beats a busy dashboard. It helps non-specialists see, at a glance, whether pay is outrunning prices.
Management checklist for tracking purchasing power inside organisations
Use this compact checklist for a four-week improvement cycle. It balances clarity with evidence, and it can be pasted straight into a briefing pack.
- Target. Choose one business unit or pay grade. State the metric you will monitor: output per hour, absenteeism or customer satisfaction.
- Baseline. Record current nominal pay growth and local inflation assumptions. If relevant, include energy or rent adjustments for your site.
- Change. Define one workflow tweak that raises team effectiveness without overtime: shift handover script, better rota coverage, or tooling adjustments.
- Data discipline. Document where the numbers come from and who checks them. Keep definitions consistent across months.
- Review cadence. Hold a 20-minute weekly huddle. Compare the latest three-month average for pay and prices with the baseline and agree go, hold, or pivot.
If your unit draws on materials from different sources, merge images from your ONS chart and your internal KPI screenshot so that people see the context on one page. Round it off with one sentence that answers the plain-English question your team will ask: are we better off in real terms this month, and why.
Key point. Small, auditable steps convert macro signals into local gains. The combination of simple visuals and steady routines is what sticks.
Bottom line for households
For many families the immediate question is not abstract. It is whether pay after tax can cover food, transport and housing with a little room left over. Real pay is finally positive and headline inflation has stabilised. But services inflation is still elevated, and tax and housing costs dilute the recovery in spending power. In practice, the outlook for the next six months depends on smoother services disinflation and more evenly spread pay growth. A couple of tenths on each can make the difference between a fragile plateau and a modest upswing.
If you share updates with non-specialist audiences, keep the format consistent month to month, and, where necessary, merge images from different sources to prevent confusion about which number is which. Consistency is part of the message.
FAQ
Are real wages rising now?
Yes. Regular pay was up about 4.8 percent in May to July 2025, with real regular pay around 0.7 percent on CPIH and 1.2 percent on CPI. That is an improvement on 2024.
Why has inflation not returned to 2 percent if energy prices eased?
Because services inflation, which reflects wages and capacity, is still close to 5 percent. That component is slower to adjust than goods prices.
Do business surveys back a recovery story?
They suggest stabilisation. October’s flash PMI pointed to slightly firmer activity with cooling price pressures, which helps planning and investment.
Which sectors are seeing the fastest pay growth?
Earlier in 2025, wholesaling, retailing, hotels and restaurants led regular pay growth, while finance and business services were softer.
Does median pay confirm the trend?
Yes. Median weekly earnings for full-time employees rose 5.3 percent year on year in April 2025, about 1.1 percent in real terms using CPIH.
