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 reduction in disposable income over the coming three years, heralding a period of falling living standards that analysts label as “painful”.

Drawing on Treasury forecasts for wages, inflation and tax policy, the projection indicates that following a short post‑pandemic recovery, real purchasing power will start to decline once more. Modest wage increases are expected to be eclipsed by rising prices, resulting in households having less after‑tax income for essential expenses.

This alert arrives while the UK continues to contend with the lingering impacts of the COVID‑19 pandemic, an unprecedented jump in energy costs, and a suite of fiscal tightening steps. In the last two years, real wages have scarcely matched inflation, and despite a comparatively tight labour market, many employees have not seen commensurate pay hikes.

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

Policymakers are paying attention. While the government’s present budget emphasizes fiscal consolidation, the Resolution Foundation together with other research institutions are urging targeted actions—temporary tax relief, enhanced support for low‑pay employees, and productivity‑boosting measures—to counteract the anticipated shortfall.

The think‑tank notes that the coming years will serve as a pivotal test of the UK’s economic approach. Should wage growth speed up and inflation be reined in, the downward slide could be arrested. In the meantime, analysts warn that households must brace for tighter budgets, and the political discussion on safeguarding living standards is set to heat up.