Resolution Foundation forecasts three‑year decline in UK household disposable income

The independent economic think‑tank Resolution Foundation cautions that the typical UK household will experience a fall in disposable income over the coming three years, heralding a period of falling living standards that analysts label “painful”.

Using Treasury forecasts for wages, inflation and tax policy, the projection indicates that after a short post‑pandemic bounce, real purchasing power will start to slip again. Even modest wage gains are set to be eclipsed by price increases, leaving families with less net money after taxes and essential expenses.

This alert arrives while the UK continues to wrestle with the lingering fallout of the COVID‑19 pandemic, an unprecedented surge in energy costs and a string of fiscal tightening steps. In the last two years, real wages have barely matched inflation, and although the labour market remains relatively tight, many workers have not seen commensurate pay hikes.

A prolonged dip in disposable income may push households to cut back on non‑essential spending, postpone big‑ticket purchases and lean more on credit. The impact will be felt most sharply by low‑income families, sparking worries about a possible rise in poverty levels and added pressure on the welfare system.

Policymakers are taking note. While the government’s current budget emphasizes fiscal consolidation, the Resolution Foundation and other research groups are urging targeted measures—such as temporary tax relief, stronger aid for low‑pay workers and steps to boost productivity—to mitigate the anticipated shortfall.

The think‑tank says the next few years will be a decisive test of the UK’s economic approach. If wage growth can be accelerated and inflation tamed, the downward trajectory might be reversed. Until then, analysts advise households to brace for tighter budgets, and anticipate a heated political debate over protecting living standards.