UK households will end the decade virtually no better off than at the start of the pandemic, according to official forecasts from the Office for Budget Responsibility. The OBR expects real household disposable income per person, a measure of living standards, to be just 1 per cent higher than its pre-pandemic level in 2029-30. In a sharp downgrade from its March forecasts, the fiscal watchdog said RHDI would fall outright in the near term. David Miles, a senior OBR official, said growth over the decade would average just 0.1 per cent a year, the most brutal outcome in records stretching back to the 1950s. Growth rates of 2 per cent a year were typical before the 2008 global financial crisis.
Higher energy prices were the main reason the OBR cut the immediate outlook, Miles said, but tax increases announced in previous Budgets, in particular the freeze in personal tax thresholds, are also adding to the pressures. By the end of the forecast period, taxes would have increased by the order of 6 per cent of GDP compared with before Covid. The OBR expects GDP to grow 1 per cent in 2027, and it has not changed its medium-term GDP forecast. However, workers have lost bargaining power in a weak jobs market. The OBR expects no real-terms gains in earnings in 2027 or 2028, with real wage growth recovering to just 0.5 per cent in 2030.
Ruth Curtice, chief executive at the Resolution Foundation, said the forecasts reflected what is set to be a truly terrible decade for living standards. She criticised the chancellor's cost of living measures, saying help with energy bills was badly targeted. The 2020s are now expected to bring twice the inflation of a normal decade, with prices rising by 42 per cent. Helen Miller, director of the Institute for Fiscal Studies, said the breathing space package was relatively small and relied on an outdated council tax system to give a £100 one-off payment to four-fifths of households in England.
The outlook could have been worse, as the forecasts are based on energy price expectations from early August, before recent steep increases. The OBR shows inflation peaking at 3.8 per cent early next year and returning to 2 per cent in mid-2028.
Source: Financial Times Companies · Summarized by HeadlinesBriefing