Let's start here
The number on your payslip isn't the whole story.
Let's take two workers. In 1970, the average British worker earned about £2,090 a year. In 2026, the average is £38,600. On paper, that's a roughly eighteen-fold increase. Incredible progress, right?
Except when you adjust for inflation — when you convert 1970 wages into today's money — that £2,090 is actually worth about £22,600 today. Suddenly the gap is much smaller. And when you compare that to what a house cost (roughly £5,000 in 1970, roughly £290,000 now — a fifty-eight-fold increase), the picture shifts entirely.
The wages went up. The prices went up faster. And they didn't go up evenly. That unevenness is everything.
Not a tax. Not a conspiracy. Just maths — with consequences.
The UK measures inflation primarily through the Consumer Prices Index (CPI) — a basket of around 700 goods and services that the Office for National Statistics tracks monthly. When the prices in that basket rise, the CPI rises, and that rise is reported as the inflation rate.
But here's the thing about that basket: it's an average. It includes everything from bread to broadband to new cars. And inflation doesn't hit everything equally. Some prices rise fast. Some fall. Some stay flat for years and then spike overnight. The official number is a useful shorthand, but it masks enormous variation in how inflation is actually experienced.
Goods traded globally — electronics, clothing, many foods — tend to get cheaper over time as production becomes more efficient and global competition increases. This is why a smartphone today costs roughly the same as one in 2010, despite being vastly more powerful.
Services that rely on local labour — healthcare, education, childcare, housing — tend to rise faster than general inflation, because you can't offshore a teacher or a plumber. This is why the things you genuinely can't avoid feel so much more expensive than official figures suggest.
And then there are supply shocks — sudden events (oil crises, pandemics, wars) that disrupt supply chains and send specific prices surging. The 2022 energy crisis was a supply shock. So was the 1973 oil embargo. Different causes, same felt experience: prices going up faster than your income can follow.
The thing nobody tells you is that inflation is also deeply personal. A retired person with no mortgage and a paid-off house experiences inflation very differently to a 28-year-old renting in Manchester and paying for childcare. The official number is the average of millions of completely different situations.
The real question isn't what you earn. It's what you can buy.
Purchasing power is what your income actually gets you in the real world. It's wages minus inflation. And it's the thing that determines whether you're actually getting richer — or just running to stand still.
Here's the uncomfortable truth about the last two decades in the UK. In nominal terms — the number on your payslip — wages have risen every year since 2008. In real terms — once you adjust for inflation — they've barely moved.
Three percent. Over eighteen years. That's roughly 0.17% real wage growth per year. For context, the long-run average prior to 2008 was closer to 2% per year. Something broke in 2008, and it hasn't fully fixed itself.
"Your salary going up isn't the same as you getting richer. What matters is whether your salary is going up faster than the things you need to buy."
This matters for how you think about pay rises. A 3% pay rise in a year when inflation is 2% is a real terms increase of about 1%. A 3% pay rise in a year when inflation is 5% — like 2022 — is actually a real terms pay cut of 2%. Many workers in 2022 and 2023 received "pay rises" that left them materially worse off. Most didn't fully realise it, because the headline number felt positive.
It depends entirely on what you own, owe, and save.
This is the part most explainers skip — but also the most practically useful. Inflation doesn't affect everyone the same way. It depends on your financial position: specifically, what you own, what you owe, and what you've saved.
If your savings account pays 3% and inflation is 5%, your money is growing in nominal terms but shrinking in real terms. After a year, £10,000 is worth £10,300 in cash but only £9,810 in purchasing power. Inflation silently erodes savings that aren't beating it.
Inflation works against youHard assets like property tend to hold or increase their real value over time. If inflation runs at 5%, the nominal value of physical assets typically rises with it — protecting your wealth. This is one reason property has been such a powerful wealth builder in the UK for 40 years.
Inflation can work for youIf you have a fixed-rate mortgage at £150,000 and inflation runs at 5% for five years, that debt hasn't changed — but everything else has. In real terms, your debt is worth considerably less. High inflation quietly erodes fixed debts — which is why the 1970s were great for people who had mortgages.
Inflation erodes your debtIt depends on what your pension is invested in. Equities have historically outpaced inflation over the long term — but not every year. Fixed-income bonds can be hammered by inflation. A pension that isn't growing faster than inflation is shrinking in real terms, even if the number looks bigger.
Depends on the investmentDivide 72 by the inflation rate to get the number of years it takes to halve your purchasing power. At 2% inflation: 36 years. At 5%: just 14 years. At the peak 1975 rate of 24%: only 3 years.
This is why leaving large sums in low-interest savings accounts for decades is quietly destructive to wealth — even when it feels safe. The number doesn't shrink. The purchasing power does.
Same anxiety. Different numbers. Every single time.
One of the most striking things about looking at UK economic history is how familiar each crisis feels. The specific causes change. The anxiety doesn't. Every generation has its version of "things cost too much and wages don't go far enough."
The 1950s and 60s — the long boom
Post-war Britain experienced something genuinely unusual: sustained, broad-based wage growth that outpaced inflation year after year. Real wages roughly doubled between 1950 and 1970. This was the era that created the idea of the "standard of living" as something that would automatically improve from one generation to the next — an expectation that is still with us.
The 1960s were extraordinary. The package holiday arrived. Car ownership doubled. The NHS was a decade old and delivering. For ordinary working people, the future felt genuinely, materially better than the past. That sense of forward motion — of wages keeping ahead of prices — was not the norm of human history. It felt like it was. That's important for understanding the bitterness of everything that followed.
Real wage growth across the decade — one of the biggest sustained increases in British history. The last time ordinary workers felt decisively, year-on-year, materially richer.
The 1970s — when it all came apart
The 1973 oil embargo changed everything. Petrol went from 36p a gallon to a pound within years. Inflation hit 24% in 1975. The government introduced a three-day working week to conserve electricity. Pay deals chased prices in a spiral that made everyone feel like they were running fast just to stay in place.
This is the decade that created the modern British anxiety about money. The generation that lived through it never fully recovered its confidence in stability. They paid off mortgages as fast as possible. They kept emergency cash. They checked prices. Not because they were irrational — because they'd watched rational-seeming financial arrangements collapse in real time.
I used to wonder why older relatives would turn the heating off in October and put on a jumper instead. Then I looked at the 1970s energy price data. They're not being eccentric. They're remembering when the cost of heating a house was genuinely terrifying — and not entirely predictable.
The 1980s — who inflation helped, and who it didn't
Inflation was wrestled down in the 1980s — from 18% in 1980 to 3% by 1989. Real wages improved for many workers. But the decade also showed very clearly how unevenly inflation's effects are distributed. If you owned a house in 1980, the following decade was extremely good for your wealth. If you didn't, you were increasingly locked out of an asset growing faster than wages.
How much house prices rose across the decade. A homeowner's wealth roughly quadrupled. A renter's did not. The compounding effects of that divergence are still playing out in 2026.
2008 to now — the wages that stopped growing
The financial crisis of 2008 is the single biggest event in the living financial memory of most working-age adults in the UK today. Real wages fell sharply in 2008–09 and then did something unusual: they stayed flat for a decade. By 2019 they had only just recovered to pre-crash levels — eleven years to get back to square one.
Then Covid arrived, followed by the 2022 cost-of-living crisis which pushed inflation to 11% — levels not seen since the 1980s. Energy bills that had been roughly £900 a year in 2019 rose to over £3,500 at the 2023 peak.
The framework. Not the formula.
This is not financial advice — every situation is different. What it is, is a framework for thinking about your money in the context of inflation. Four questions worth asking yourself regularly:
- Is my salary keeping pace with inflation? Not just nominally — in real terms. A 2% rise in a 4% inflation environment is a pay cut. It's worth knowing which one you've been getting.
- Are my savings beating inflation? If your savings account pays less than the current inflation rate, your money is losing purchasing power every year. Sometimes that's a deliberate trade-off for liquidity — but make it consciously.
- What type of debt do I have? Fixed-rate debt gets eroded by inflation. Variable-rate debt costs more when inflation is high. Understanding which you have matters for how you think about paying it down.
- What is my pension actually invested in? Find out. It takes fifteen minutes. If you're decades from retirement you probably want growth-oriented investments that outpace inflation. Most people have no idea. Find out.
"You don't need an economics degree to think clearly about inflation. You just need to ask: is my money growing faster than prices? And if not — why not?"
The thing I keep coming back to is that inflation isn't some abstract force. It's the accumulated result of millions of pricing decisions, supply chain pressures, policy choices, and global events — all landing on your specific situation, in your specific town, with your specific income and outgoings. The official CPI figure is useful. But your personal inflation rate might be very different. That's the number worth paying attention to.
What's next in the Lucy Off Duty series.
This post is part of a wider series exploring the things that affect your pay packet but don't usually make it into payroll explainers. Coming up:
- Universal Basic Income — what it is, what it isn't, and why it keeps coming back into the conversation
- The gender pay gap through the decades — using Wayback Wage data to show how women's wages have (and haven't) converged
- Why your pension statement lies to you — nominal vs real returns, and what your retirement pot actually buys
- The gig economy and income stability — what irregular income does to your financial planning
Pick a decade. See what the average Brit earned — and what that money could actually buy. Switch to real wages to see what inflation has really done to purchasing power over 70 years.
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