Economic forecasters have issued stark warnings that British households face a "painful" and "depressing" period ahead, with living standards set to stagnate or fall over the coming years despite government efforts to provide relief. According to BBC News, the Resolution Foundation projects that typical working-age households will experience a decline in disposable income of £1,050, equivalent to 3%, between now and 2029, while the Institute for Fiscal Studies has characterised the current decade as the worst on record for household income growth.
Chancellor John Healey defended his Budget as providing "breathing space" for households, though he acknowledged the government could "never remove completely" the pressures created by rising living costs. The Office for Budget Responsibility, the UK's official economic forecaster, described its latest projections as painting a "pretty grim picture", attributing the difficult financial outlook to elevated borrowing costs and inflation stemming from international conflicts including the US-Iran war.
In an effort to ease the burden on household finances, Healey announced a package of measures centred on a £100 support payment to help offset rising energy prices. However, the Resolution Foundation cautioned that this intervention would prove insufficient to counteract the full impact of higher energy bills on family budgets. According to the Resolution Foundation's fuller analysis, the Budget's £3.7 billion household-support package is spread thinly, with just over half of the measures directed towards poorer households.
Ruth Curtice, chief executive of the Resolution Foundation, characterised the current parliamentary term as increasingly divided into two distinct phases.
"The first half has been marked by rising living standards, solid economic growth and extra funding for public services,"she said, before warning that the second half would prove "tough going". She criticised the government's response as a "scattergun" Budget that failed to adequately address the nation's underlying challenges.
Over the course of this parliament, disposable incomes for non-pensioner households—after accounting for taxes, benefits, and housing costs—are projected to rise by only £600, a figure the Resolution Foundation described as "paltry", with virtually all gains concentrated in the first five years of the term. Even with the additional government support, households will face higher energy bills than during the previous energy crisis in 2022, according to the Foundation's analysis. The think tank argued that support should have been more carefully targeted at the poorest households, where the need is greatest.
What do the official forecasts show?
The Office for Budget Responsibility issued an economic forecast alongside the Budget indicating a deceleration in gross domestic product growth from 1.2% in 2026 to 1% in 2027, a significantly sharper decline than predicted in their March assessment. The OBR also raised its inflation forecast for 2027 from 2% to 3.4%, reflecting heightened price pressures in the economy. According to the Resolution Foundation, the OBR forecasts prices will rise 6.5% over 2026 and 2027, and real household disposable income per person will not recover its recent £420 fall until April 2029.
The frozen tax thresholds maintained by the government are also eroding people's take-home pay, compounding the squeeze on household finances. The OBR acknowledged the inherent difficulties in economic forecasting, emphasising substantial uncertainty surrounding the future trajectory of inflation, which could prove either significantly higher or lower than their current predictions.
While the Resolution Foundation focused its living standards forecast on working-age households, the OBR examines all households including pensioners and employs a 10-year rolling average to smooth short-term fluctuations. By this broader measure, the OBR found that living standards for all households would have expanded by less than 0.1% per year by the end of the decade. The Institute for Fiscal Studies reinforced this gloomy assessment, stating that
"This decade looks set to be the worst decade for growth in household incomes on record. No amount of temporary cost of living packages will fix that. We need a stronger economy."
The OBR's data reveals a stark deterioration in income growth prospects. Real household disposable income growth averaged 0.3% per person annually in the decade to 2025–26; the OBR now expects an average of just 0.1% in the decade to 2029–30, according to analysis from Yahoo News.
How will government spending plans be affected?
Helen Miller, director of the Institute for Fiscal Studies, warned of mounting pressure on the government's spending plans over the parliamentary term.
"Spending plans look extremely tight. They don't look to me like plans that this government would want to deliver,"she said, adding that
"Whether or not they are delivered matters because the spending plans underpin the plan to bring down borrowing."Miller suggested that Chancellor Healey appeared to be banking on economic improvement to relieve pressure on these constrained spending decisions.
Speaking on the BBC's Today Programme, Healey attributed the difficult economic environment to "economic storms" affecting countries worldwide, including the Iran war and Russia's invasion of Ukraine, and said the government was providing assistance where possible. He characterised the energy bill help as creating "breathing space" for most households, with approximately 20 million households eligible to receive the £100 payment based on their council tax band.
However, Conservative shadow chancellor Andrew Griffith contended that the Budget had left public finances "more fragile" by reducing the "headroom"—the buffer between government revenues and spending. Liberal Democrat leader Ed Davey acknowledged that the £100 energy payment would be viewed by many as the Budget's most valuable element, but argued it was "not good enough" when considered alongside the "stealth tax rises" that were reducing people's earnings.
What happens next?
The Resolution Foundation has warned that the choices between public-service ambitions and household incomes will become increasingly stark in the coming year, as the government faces critical decisions on future spending plans. The tension between maintaining service quality and protecting household finances will intensify as the parliamentary term progresses, with no easy resolution in sight for policymakers navigating competing demands on the public purse.
The broader context of these forecasts reflects earlier findings about regional inequality in the UK economy. A PwC report found that 46% of UK households live in areas where economic growth fails to improve living standards, revealing a stark North-South divide in spending power that compounds the challenges facing lower-income families nationwide.
