Introduction: War in Middle East threatens UK living standards growth
Good morning, and welcome to our ongoing coverage of business, financial markets, and the global economy.
The aftermath of Rachel Reeves’s spring forecast statement yesterday is becoming clearer, revealing that economic growth this year will be weaker than anticipated, and unemployment is expected to rise.
Although the chancellor asserted that the UK could "beat the forecasts again," economists express concern that the continuing crisis in the Middle East will significantly impact the economy and household finances.
The Resolution Foundation has just published an overnight analysis of the Office for Budget Responsibility’s forecast.
The positive aspect? The UK is projected to experience a "decent," one-off increase in living standards this year, with a substantial rise for lower-income families.
The downside? A new energy price shock could potentially erase these gains.
The broader outlook? The medium-term prospects for living standards remain grim.
According to the Resolution Foundation’s calculations, living standards for typical working-age families are expected to increase by £300 over the coming year (between 2025-26 and 2026-27).
Lower-income households are anticipated to see a larger increase in living standards, up 3.9% or £800. This would represent the second strongest year for living standards among poorer families in the past two decades.
However, if energy prices do not decline, these improvements will be nullified.
If recent increases in oil and gas prices persist, they could add approximately one percentage point to inflation and £500 to typical annual energy bills, according to the Resolution Foundation.
The energy price cap could increase by £500 in June, the Resolution Foundation warns. This development could overshadow all other projections from the Spring Forecast.
"The immediate economic outlook for Britain is highly uncertain, with yesterday’s forecasts already looking out of date, while the living standards picture for the rest of the Parliament is very lopsided.
"This coming year is set to be a decent one for living standards, and a bumper one for poorer families, as wages and benefit support rise above the level of inflation. But a fresh energy price shock risks puncturing this good news."
Ruth Curtice, chief executive at the Resolution Foundation, provided this assessment.
The agenda
- 9am GMT: Resolution Foundation event on the spring forecast
- 9.00am GMT: Eurozone services PMI for February
- 9.30am GMT: UK services PMI for February
- 10am GMT: Eurozone unemployment report for January
- 2.45pm GMT: UK services PMI for February
Markets fall in Asia-Pacific again
Asia-Pacific stock markets continued to decline today amid increasing fears that the US-Israel conflict with Iran could trigger an energy shock.
Japan’s Nikkei index fell 3.6% in late trading, while South Korea’s market plunged by 12%.
Stocks continued to drop despite former President Donald Trump’s offer to have the US Navy escort tankers through the Strait of Hormuz.
The sell-off was so severe that trading in both South Korea and Thailand was temporarily suspended.
Despite the near-term positive outlook for living standards this year, the medium-term picture remains bleak.
The Resolution Foundation projects that after next year, the incomes of typical working-age families are expected to decline by 0.5%, or £150, over the remaining two years of the Parliament.
"With wage growth set to tail off, the living standards picture for the rest of the Parliament is bleak. This should remind policy makers of the need to both navigate near-term uncertainty and support productivity-based economic growth over the medium term. That is the only way to meaningfully lift living standards throughout Britain."
