People are facing a "painful" and "depressing" few years ahead, economic think tanks have warned, after forecasts showed growth in living standards grinding almost to a halt. Typical working-age households would see their disposable income fall by £1,050, or 3%, between now and 2029, according to the Resolution Foundation, while the Institute for Fiscal Studies (IFS) said the current decade would be the worst for household income growth on record. Chancellor John Healey said his Budget offered "breathing space", but said the government could "never remove completely" cost of living pressures.
The UK's official forecaster said its latest economic forecast painted a "pretty grim picture". The Office for Budget Responsibility (OBR), blamed the difficult financial situation facing the UK on higher borrowing costs and inflation caused by the US-Iran war. In response to rising energy prices, Healey has announced measures, including a £100 support payment, aimed at easing pressure on household finances.
But that would not be enough to offset the impact of higher energy bills, the Resolution Foundation said. "This parliament is increasingly looking like one of two halves," said the think tank's chief executive, Ruth Curtice. "The first half has been marked by rising living standards, solid economic growth and extra funding for public services," she said.
However, the second half of the parliament would be "tough going", she said. Treasury will not commit to reducing welfare bill before next election What we now know about the UK economy in four charts Your pay, energy bills and savings: How the Budget affects you In response the government had provided a "scattergun" Budget that did not do enough to address the challenges facing the country, Curtice said. Over the course of this parliament, incomes for non-pensioner households, after taxes, benefits, and housing costs are taken into account, will have risen by "a paltry" £600, the Resolution Foundation said, with the gains made in the first five years.
Even after the extra support provided by the government, households will be left paying higher energy bills than during the last energy crisis in 2022, according to its analysis. The Resolution Foundation said the support should have been more targeted at the poorest households. Alongside the Budget the OBR issued its economic forecast indicating a slowdown in GDP growth from 1.2% in 2026 to 1% in 2027.
The forecast for next year is sharply lower than what was predicted at their last assessment in March. The OBR also put its forecast for inflation for 2027 up from 2% to 3.4%. Frozen tax thresholds are also eating into people's take-home pay.
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