Britainupdated 1h ago3 min read
OBR Warns Grim Picture for UK Living Standards as Disposable Incomes Fall 0.6%
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OBR forecasts UK living standards flatlining this decade. Typical disposable income expected to fall, indicating ongoing household hardship.
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Budget forecasts and pain
The Office for Budget Responsibility warned that British households face a “pretty grim picture” for living standards as it downgraded growth in 2027 and forecast household disposable incomes would fall by 0.6% next year after taking account of inflation. David Miles of the OBR said, “It’s a pretty grim picture”, and he added that per person real household disposable income was “virtually no growth” compared with just before Covid. John Healey said his first budget would offer “breathing space” through policies to help with soaring energy costs, including £100 in blanket payments for 20 million households.
The OBR forecast consumers would face inflation of 3.5% this year, significantly higher than the 2% forecast in March, and it said the war in the Middle East was dragging down growth and triggering a fresh cost of living crisis. Healey also said the exchequer was spending £14bn more on debt interest as the financial market fallout from the conflict pushed up borrowing costs for countries worldwide.
Healey, headroom, and energy
The OBR said Healey left £15bn of headroom against the main fiscal rule, down from £23.6bn left by Rachel Reeves in the spring, and it said borrowing was poised to fall to about 2% of GDP in the medium term. Healey said he would allow a hit to his buffer against the government’s fiscal rules while also announcing a temporary rise in tax on banks to fund his package of energy support. The OBR forecast that if energy prices rose to a higher and more sustained peak, government borrowing could be £17bn above the central forecast next year.
Healey told the public, “There are real challenges ahead but Britain has beaten the forecasts this year, and with the action I am taking today I believe Britain can beat the forecasts again,” as he pointed to upgrades from the Bank of England and the International Monetary Fund. The Guardian reported that the OBR said Britain’s resilience to the conflict would begin to fizzle out as the impact from the war steadily mounted.
Uncertainty and political stakes
The OBR warned that outcomes for the economy, households, and the UK public finances were highly uncertain, and it said there were “significantly better or worse outcomes of broadly equal probability”. The Guardian said the OBR forecast disposable incomes in 2029 would be only 1% higher than in 2019, before the onset of the Covid pandemic, after taking account of inflation. The Guardian reported that Healey announced £100 in blanket payments for 20 million households at a cost to the exchequer of £2.6bn and a plan to abolish standing charges on gas bills.
The Guardian said the OBR upgraded its growth forecast for this year from 1.1% to 1.2% after an unexpectedly resilient performance fuelled by AI investment, while it slashed its estimate for next year from 1.5% to 1%. The Guardian said oil prices had risen from about $70 a barrel to more than $115 and gas prices had almost tripled since the start of the US-Israeli led invasion of Iran at the end of February.