Economic Think Tanks Warn of 'Painful' Years Ahead Amid Stagnant Living Standards

Economic think tanks have cautioned that people are facing a 'painful' and 'depressing' period ahead, following forecasts that suggest growth in living standards is coming to a near standstill, according to a report from BBC UK.

The Resolution Foundation stated that working-age households are projected to experience a reduction in disposable income of £1,050, which equates to 3%, between the present time and 2029. Furthermore, the Institute for Fiscal Studies (IFS) indicated that the current decade is anticipated to be the worst for household income growth ever recorded.

Chancellor John Healey mentioned that the Budget provided 'breathing space,' though he also stated that the government cannot entirely eliminate the pressures related to the cost of living. The UK's official forecaster described its most recent economic forecast as presenting a 'pretty grim picture.'

The Office for Budget Responsibility (OBR) attributed the challenging financial circumstances in the UK to inflation and increased borrowing costs stemming from the US-Iran war.

In response to escalating energy costs, Healey announced measures, including a £100 support payment, intended to alleviate financial strain on households. However, the Resolution Foundation's analysis suggested that these measures would not be sufficient to counteract the effect of higher energy bills.

Ruth Curtice, the chief executive of the think tank, commented that the current parliament appears to be divided into two halves. She noted that the initial half featured rising living standards, solid economic growth, and additional funding for public services, but the second half of the parliament is expected to be 'tough going.'

Curtice also asserted that the Budget provided by the government was a 'scattergun' approach that failed to adequately address the nation's challenges. The Resolution Foundation reported that over the duration of this parliament, incomes for non-pensioner households, after accounting for taxes, benefits, and housing costs, are expected to rise by a 'paltry' £600, with those gains already being in the past.

According to the Resolution Foundation's analysis, even with the extra support from the government, households will continue to pay higher energy bills than they did during the energy crisis of 2022. The Resolution Foundation also expressed that the support provided should have been more specifically aimed at the poorest households.

In addition to the Budget, the OBR released its economic forecast, which pointed to a deceleration in GDP growth from 1.2% in 2026 to 1% in 2027. The forecast for the following year is significantly lower than what was predicted in its last assessment in March. The OBR also raised its inflation forecast for 2027 from 2% to 3.4%.

Frozen tax thresholds are also impacting people's take-home pay. The OBR emphasized the complexities of economic forecasting, pointing out uncertainty regarding the future trajectory of inflation, which could potentially be substantially higher or lower than their projections.

While the Resolution Foundation concentrated its living standards forecast on working-age households, the OBR's assessment encompasses all households, including pensioners, and utilizes a 10-year rolling average growth to account for short-term variations.

The OBR determined that by the conclusion of the decade, the living standards for all households would have seen minimal growth, less than 0.1% annually.

Helen Miller, director of the Institute for Fiscal Studies (IFS), stated that the outlook was 'depressing.' She added that 'this decade looks set to be the worst decade for growth in household incomes on record,' and that 'no amount of temporary cost of living packages will fix that. We need a stronger economy.'

Miller also mentioned that there would be increasing pressure on the government's spending plans throughout the parliament. She observed that 'spending plans look extremely tight' and do not appear to be plans that this government intends to implement. She further noted that whether or not these plans are executed is significant because the spending plans form the basis of the plan to reduce borrowing. Miller conveyed the impression that Healey was hoping the economy would improve to ease the strain on those spending decisions.

Healey, speaking on the BBC's Today Programme, stated that 'economic storms,' including the Iran war and Russia's invasion of Ukraine, are affecting nations globally, and the government is attempting to assist where possible. He mentioned that the energy bill assistance would provide 'breathing space' for most households.

Approximately 20 million households are scheduled to receive the £100 payment, based on their respective council tax bands.

Conservative shadow chancellor Andrew Griffith contended that the Budget had made public finances 'more fragile' because Healey had decreased the 'headroom' or the buffer between the country's revenues and its expenditures.

Liberal Democrat leader Ed Davey suggested that the £100 energy payment would be considered the best element of the Budget for many individuals, but he argued that it was 'not good enough' when considering the 'stealth tax rises' that are reducing people's earnings.