How your household budget could look in 2026

Inflation may have fallen from its double-digit highs but is still expected to remain above the Bank of England’s 2% target into 2026, which will impact household bills.

Forecasts from the Office for Budget Responsibility (OBR) suggested wage growth and energy price volatility could keep inflation, which measures the cost of living, “higher for longer”.

Inflation was measured at 3.6% in October, said MoneyWeek, suggesting it “may have peaked in 2025”.

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But lower inflation doesn’t mean prices are falling, said Big Issue, and many people are still “feeling the impact of the cost of living crisis”. Announcements in the Autumn Budget may also impact individual household finances.

Wages

Household budgets could get a boost from pay rises in 2026. The government has confirmed a 4.1% rise in the minimum wage for over-21s to £12.71 per hour from April 2026. It will benefit 2.4 million workers but, while positive, the higher wage will still “fall short of the voluntary real living wage”, said Katherine Chapman, director of the Living Wage Foundation. This is set at £13.45 per hour in the UK, and £14.80 in London.

Meanwhile, employers have raised concerns the wage hike will push up prices, with worries about a hiring freeze among businesses.

Pensioners are likely to be satisfied with a boost to their state pension payments, set to rise by 4.8% to £12,548 per year from April 2026.

But frozen thresholds mean the higher state pension payments and wage growth could see more people “dragged into higher tax bands”, said The Guardian, ultimately hitting your household budget.

Weekly shop

Food prices made the “largest upward contribution” to October’s inflation data, according to the Office for National Statistics, and there are fears that costs may rise further.

A “combination of pressures” is pushing the cost of a weekly shop up, said Saga, including higher costs for fertiliser and animal feed as well as for food, fuel, labour and transport.

The British Retail Consortium has forecast that food price inflation will remain above 5% in 2026, especially as a new sugar tax announced in the Budget “does little to mitigate the rising cost of food and essentials”.

Petrol prices

Drivers were boosted by a freeze in fuel duty in the Budget, with a temporary 5p cut kept in place. But the “sting in the tail”, said This Is Money, is that the 5p cut will gradually be reduced from September 2026.

Motorists, however, may be helped by the launch of a new government-backed Fuel Finder scheme in February 2026. The programme will mandate petrol forecourts to “share real-time price rises in a bid to call out rip-off retailers”.

Energy bills

Chancellor Rachel Reeves said in her Autumn Budget that she would remove £150 from household energy bills by ending the Energy Company Obligation scheme from March 2026.

The ECO previously provided energy efficiency support for households, funded by suppliers through bills, and it would be “unthinkable”, said MoneySavingExpert founder Martin Lewis, if it is not passed on.

But while this "may take the sting out of energy bills right now", costs will need to be picked up elsewhere, said Dr Craig Lowrey, from energy consultancy Cornwall Insight. This may result in higher taxes.

Childcare

The two-child benefit cap for those on universal credit is set to be scrapped from April 2026 in a “huge boost for families”, said The Sun.

Universal credit claimants can currently get up to 85% of their childcare costs repaid up to £1,031.88 for one child and £1,768.94 for two or more.

The payments were previously capped at two children, but parents will get an extra £736.06 for each child above the two-person limit from April 2026.

Labour MPs and charities, said the BBC, have argued that this is the “most cost-effective way to reduce child poverty”.

It comes as data shows it now costs £166,000 for a couple and £220,000 for a single parent to raise a child to age 18, said Moneyfarm. It means “financial planning before becoming a parent is so important”.

Cost of borrowing

With the Autumn Budget out of the way and inflation slowing, the Bank of England is “expected to cut interest rates before Christmas", said This Is Money. This would be positive for those looking to remortgage or climb on to or up the property ladder next year. But while mortgage rates are expected to fall in 2026, said the HomeOwners Alliance it is not necessarily going to be a “sharp drop”.