UK disposable incomes squeezed by price rises and tax changes
UK households suffered a drop in disposable incomes in the first three months of the year as price rises and extra wealth taxes hit average spending power.
The Office for National Statistics said a rise in the consumer prices index (CPI) measure of inflation in the first quarter and higher capital gains tax receipts reduced real household disposable income by 0.8% from January to the end of March.
It marked the fourth quarter in the last five when disposable incomes have fallen, the ONS said in its latest assessment of the economy.
Andy Burnham, who is expected to replace Keir Starmer as prime minister next month, used a major speech on Monday to signal that tackling the cost of living and decline in living standards would be central to his premiership.
He said: “We need a new determination to raise living standards of every person in this land. And we must accept that to do that, to fix the economy and the country, we need to change politics and we need to do it now.”
Burnham announced a 10-year mission to raise living standards across the UK and bring down the cost of essentials such as water, energy and transport.
The ONS confirmed early estimates that showed the economy growing by 0.6% in the first quarter, but GDP growth over last year was revised down slightly from 1.4% to 1.3%.
All three main sectors of the economy – services, production and construction – grew in the first quarter of this year, the ONS said, with the largest contribution from services, which expanded by 0.8%.
Thomas Watts, an investment manager at the private bank Julius Baer, said the figures represented a boost for Rachel Reeves in what are expected to be her last weeks as chancellor.
“Encouragingly, the composition of growth was more balanced than in recent quarters. Both construction and production posted gains of 0.2%, signalling a modest but welcome broadening in economic momentum,” he said.
“The fact that all three main sectors contributed positively will be particularly reassuring for policymakers, both at Threadneedle Street and in Downing Street.”
The household saving ratio, which measures the proportion of disposable income that households save rather than spend, edged down marginally from 9.6% in the last three months of 2025 to 8.9%.
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Households pushed the saving ratio to 27.5% during the pandemic lockdowns, when they were unable to spend much of their income, and increased it again during the politically unstable period before the last election, after which it has steadily declined, though it remains above pre-pandemic levels.
Phil Shaw, an economist at Investec, said the first quarter “marked a decent start to 2026”, but predicted that attention would soon turn to the negative impact from the recent rise in energy prices.
“We envisage growth coming close to a halt in the third quarter, although the level of the saving ratio will give households in aggregate a cushion to absorb cost increases without an abrupt interruption in spending,” he said. “Thereafter the unwinding of the energy price spike should form a tailwind and help to support expenditure and economy activity more widely.”
He added that the Bank of England was likely to view the figures as showing the economy remains robust, although without the prospect of much growth in the next six months, allowing it to avoid interest rate rises.
Shaw said: “We have lowered our forecast of the peak in inflation over the remainder of the year from 4.0% to 3.1% … Nevertheless we still consider that the [Bank] will adopt a cautious approach to policy and guard against lingering threats of more persistent inflationary pressures.
“We remain of the view that a rate increase is off the table, but that the committee will maintain the Bank rate at 3.75% for the remainder of the year, with rate cuts coming into view over 2027.”
Read the full story at The Guardian ↗
UK household disposable incomes declined by 0.8% in the first quarter of 2026, according to the Office for National Statistics. The decline resulted from increased inflation measured by the consumer prices index and higher capital gains tax receipts. This represents the fourth quarterly drop in the past five quarters. Meanwhile, the broader economy expanded by 0.6% in the first quarter, with services, production, and construction all growing. The household savings ratio edged down to 8.9% from 9.6% in the previous quarter, though it remains elevated compared to pre-pandemic levels. Economists forecast that growth will moderate in subsequent quarters, particularly as energy price rises take effect, though the savings cushion may help households maintain spending. Interest rate rises appear unlikely, with rate cuts potentially emerging in 2027.
Read the full story at The Guardian ↗
UK households suffered a drop in disposable incomes in the first three months of the year as price rises and extra wealth taxes hit average spending power.
The Office for National Statistics said a rise in the consumer prices index (CPI) measure of inflation in the first quarter and higher capital gains tax receipts reduced real household disposable income by 0.8% from January to the end of March.
It marked the fourth quarter in the last five when disposable incomes have fallen, the ONS said in its latest assessment of the economy.
Andy Burnham, who is expected to replace Keir Starmer as prime minister next month, used a major speech on Monday to signal that tackling the cost of living and decline in living standards would be central to his premiership.
He said: “We need a new determination to raise living standards of every person in this land. And we must accept that to do that, to fix the economy and the country, we need to change politics and we need to do it now.”
Burnham announced a 10-year mission to raise living standards across the UK and bring down the cost of essentials such as water, energy and transport.
The ONS confirmed early estimates that showed the economy growing by 0.6% in the first quarter, but GDP growth over last year was revised down slightly from 1.4% to 1.3%.
All three main sectors of the economy – services, production and construction – grew in the first quarter of this year, the ONS said, with the largest contribution from services, which expanded by 0.8%.
Thomas Watts, an investment manager at the private bank Julius Baer, said the figures represented a boost for Rachel Reeves in what are expected to be her last weeks as chancellor.
“Encouragingly, the composition of growth was more balanced than in recent quarters. Both construction and production posted gains of 0.2%, signalling a modest but welcome broadening in economic momentum,” he said.
“The fact that all three main sectors contributed positively will be particularly reassuring for policymakers, both at Threadneedle Street and in Downing Street.”
The household saving ratio, which measures the proportion of disposable income that households save rather than spend, edged down marginally from 9.6% in the last three months of 2025 to 8.9%.
after newsletter promotion
Households pushed the saving ratio to 27.5% during the pandemic lockdowns, when they were unable to spend much of their income, and increased it again during the politically unstable period before the last election, after which it has steadily declined, though it remains above pre-pandemic levels.
Phil Shaw, an economist at Investec, said the first quarter “marked a decent start to 2026”, but predicted that attention would soon turn to the negative impact from the recent rise in energy prices.
“We envisage growth coming close to a halt in the third quarter, although the level of the saving ratio will give households in aggregate a cushion to absorb cost increases without an abrupt interruption in spending,” he said. “Thereafter the unwinding of the energy price spike should form a tailwind and help to support expenditure and economy activity more widely.”
He added that the Bank of England was likely to view the figures as showing the economy remains robust, although without the prospect of much growth in the next six months, allowing it to avoid interest rate rises.
Shaw said: “We have lowered our forecast of the peak in inflation over the remainder of the year from 4.0% to 3.1% … Nevertheless we still consider that the [Bank] will adopt a cautious approach to policy and guard against lingering threats of more persistent inflationary pressures.
“We remain of the view that a rate increase is off the table, but that the committee will maintain the Bank rate at 3.75% for the remainder of the year, with rate cuts coming into view over 2027.”
Read the full story at The Guardian ↗
UK household disposable incomes fell 0.8% from January to March 2026 due to inflation and higher capital gains tax receipts. This was the fourth quarterly decline in the last five quarters. The economy grew 0.6% in Q1 2026; GDP growth over the previous year was 1.3%. All three main economic sectors—services, production, and construction—grew in Q1, with services expanding 0.8% and production and construction each posting 0.2% gains. The household savings ratio declined to 8.9% in Q1 from 9.6% in Q4 2025, but remains above pre-pandemic levels. Tackling cost of living and declining living standards is expected to be central to the incoming prime minister's agenda. The balanced composition of growth across all three sectors signals welcome broadening in economic momentum. Energy price rises are expected to slow growth significantly in the third quarter. The household savings ratio will provide a cushion allowing households to absorb cost increases without sharp interruptions in spending. Interest rate rises remain unlikely, with rate cuts potentially emerging in 2027.
Read the full story at The Guardian ↗
- UK household disposable incomes fell 0.8% in Q1 2025 due to inflation and higher capital gains tax
- This marks the fourth quarterly decline in the last five quarters
- The economy grew 0.6% in Q1, with all three sectors (services, production, construction) contributing positively
- The household savings ratio declined to 8.9% from 9.6%, though remains above pre-pandemic levels
- Economists expect growth to slow in coming quarters due to energy price rises, with interest rate cuts unlikely until 2027