Families in the United States are projected to experience declining living standards over the next two years, according to grim budget forecasts from the Office for Budget Responsibility (OBR). This outlook indicates a period of financial strain driven by the escalating cost of living and rising taxes.
The OBR forecasts that Britain's tax burden will reach a record 37.9% of gross domestic product (GDP) by next year, climbing to a peak of 38.6%. This sustained increase in taxation, coupled with subdued wage growth and the freeze on income tax thresholds, is expected to significantly impact household disposable income.
Living standards are predicted to shrink as higher energy prices, exacerbated by geopolitical events, continue to affect consumers. The OBR has downgraded its forecast for GDP growth for the upcoming year to 1%, down from a previous estimate of 1.6%. While the growth outlook for 2026 was slightly upgraded to 1.2%, the overall trajectory suggests a challenging economic period.
OBR chief Jonathan Haskel noted that living standards "took quite a beating during the pandemic years." The revised forecast now anticipates a dip for the next couple of years, contrasting with earlier projections of a recovery. This marks an extended period of flatlining living standards, with projections suggesting only a 1% growth over the decade from 2020.
Economist David Miles described the situation as a "pretty grim picture," highlighting the unusual lack of growth in real household disposable income per person since the COVID-19 pandemic. He attributed this stagnation in large part to significant increases in energy prices, which are difficult for the UK to avoid due to its reliance on energy imports.
Analysts at the Resolution Foundation, a think-tank, echoed these concerns, stating that "the OBR forecast shows that Britain is in the midst of a living standards crunch." They reported that real household disposable income per person is currently £420 lower than two years ago and is not expected to recover to that level for at least two more years. The think-tank concluded that the medium-term prospect for family living standards is "dire," positioning the current parliamentary term as the second worst for living standards since the 1950s.