British households are bracing for several difficult years as forecasts indicate a near standstill in living standards, according to economic think tanks.
The Resolution Foundation projects that typical working-age households will see their disposable income decrease by £1,050, or 3%, between now and 2029. The Institute for Fiscal Studies (IFS) stated that the current decade is on track to be the worst on record for household income growth.
The Office for Budget Responsibility (OBR), the UK's official forecaster, described its latest economic outlook as painting a "pretty grim picture." The OBR attributes the challenging financial landscape to increased borrowing costs and inflation, influenced by global events such as the US-Iran war. The forecast for GDP growth has been revised downward, from 1.2% in 2026 to 1% in 2027, a significant decrease from previous predictions made in March.
Inflation forecasts for 2027 have also been raised by the OBR, from 2% to 3.4%. Compounding these pressures are frozen tax thresholds, which are eroding people's take-home pay.
Chancellor John Healey acknowledged the pressures, stating that his recent Budget offered "breathing space" but admitted that cost of living pressures could "never [be] remove[d] completely." In an effort to mitigate the impact of rising energy prices, Healey announced measures including a £100 support payment for households. However, the Resolution Foundation noted that this payment would not be sufficient to offset the full effect of higher energy bills.
"This parliament is increasingly looking like one of two halves," said Ruth Curtice, chief executive of the Resolution Foundation. She characterized the first half of the parliamentary term as marked by rising living standards and economic growth, contrasting it with a projected "tough going" in the second half.
The IFS director, Helen Miller, also highlighted concerns about government spending plans, describing them as "extremely tight" and questioning their feasibility. Miller suggested that the government might be relying on an economic upturn to alleviate pressure on spending decisions.
Healey, in a BBC interview, pointed to "economic storms" affecting countries globally, including the consequences of the war in Ukraine and the Iran conflict, as factors impacting the UK economy. He reiterated that energy bill assistance was intended to provide "breathing space" for most households, with approximately 20 million households eligible for the £100 payment based on their council tax band.
Opposition figures have criticized the government's fiscal approach. Conservative shadow chancellor Andrew Griffith argued that the Budget made public finances "more fragile" by reducing the financial "headroom." Liberal Democrat leader Ed Davey called the £100 energy payment a positive but insufficient measure, especially in light of "stealth tax rises" impacting wages.