British households are braced for a “painful” period of stagnation after a chorus of leading economic forecasters warned that growth in living standards has ground to a near halt. The Resolution Foundation, the Institute for Fiscal Studies (IFS) and the Office for Budget Responsibility (OBR) all published bleak assessments alongside the Chancellor’s latest Budget, projecting that typical working-age families will be £1,050 worse off in real terms by 2029.
A decade of disappointment
The scale of the slowdown is historic. The IFS declared the current decade on track to be the worst for household income growth since records began. “No amount of temporary cost of living packages will fix that,” said IFS director Helen Miller. “We need a stronger economy.”
For non-pensioner households, the Resolution Foundation calculates that disposable income after taxes, benefits and housing costs will have risen by a “paltry” £600 over the entire parliament. The gains, it notes, were entirely front-loaded into the first half of the term. The second half promises to be “tough going,” according to the think tank’s chief executive, Ruth Curtice.
Energy bills and the £100 sticking plaster
The immediate trigger for the downgrade is the surge in wholesale energy prices, driven by the widening conflict between the US and Iran. The OBR cited higher borrowing costs and inflation stemming from the war as the primary causes of the deteriorated outlook.
In response, Chancellor John Healey announced a £100 support payment for roughly 20 million households, targeted by council tax band. He described the measure as “breathing space” for families under pressure. But the Resolution Foundation was scathing. Even with the payment, households will face higher energy bills than during the 2022 crisis. Curtice labelled the Budget a “scattergun” approach that failed to target the poorest effectively.
Frozen thresholds and fiscal drag
Behind the headline energy support, a quieter squeeze is tightening. Frozen income tax thresholds — a policy inherited from the previous administration — continue to drag millions into higher tax brackets as wages nominally rise. The OBR highlighted this fiscal drag as a significant drag on take-home pay.
The official forecaster also painted a grim picture for growth. GDP expansion is expected to slow from 1.2 per cent this year to just 1 per cent in 2027, a sharp downgrade from the March forecast. Inflation for 2027 has been revised up from 2 per cent to 3.4 per cent. By the end of the decade, the OBR projects average annual growth in living standards for all households of less than 0.1 per cent.
Spending plans on a knife edge
The pressure extends to the public finances. Miller warned that departmental spending plans look “extremely tight” and questioned whether the government would actually deliver them. “Whether or not they are delivered matters because the spending plans underpin the plan to bring down borrowing,” she said.
Healey, interviewed on the BBC’s Today programme, pointed to “economic storms” — the Iran war and Russia’s invasion of Ukraine — as global shocks beyond the government’s control. He insisted the energy support would provide meaningful relief.
Opposition politicians were unconvinced. Conservative shadow chancellor Andrew Griffith argued the Budget had left the public finances “more fragile” by eroding the headroom against fiscal rules. Liberal Democrat leader Ed Davey dismissed the £100 payment as “not good enough” when set against “stealth tax rises” eating into pay packets.
Why it Matters
The convergence of forecasts from three independent pillars of the UK’s economic architecture signals a structural, not cyclical, crisis. For voters, the promise of rising prosperity that underpins the social contract is being replaced by a managed decline in real incomes. For the government, the narrowing fiscal headroom leaves almost no room for error — or for the investment needed to break the low-growth trap. The political consequences of a “lost decade” will not wait for the next election cycle.
