Living standards outlook for UK households is bleak

A new report from the Resolution Foundation has found that the average UK household will see income grow by only 1 per cent, around £300, between 2025 and 2030, whilst the poorest families may see a 1 per cent decline in living standards. 

The Foundation says the outlook for living standards across Britain is bleak. Housing tenure plays a key role in determining the outlook. Mortgagors are on track to see their incomes fall by 1 per cent, on average, as high interest rates continue to bear down on households coming off fixed-rate deals. Outright owners will be the tenure type to see the fastest boost to living standards, as their incomes grow by 3 per cent.

Pensioners are set to fare best of all, with their incomes forecast to rise by 5 per cent (£1,500), while families with children are set for no income growth.

This projection for weak income growth over the second half of the decade follows a rollercoaster first half, in which living standards were rocked by Covid-19 and the cost of living crisis. Britain then experienced a mini living standards boom, as incomes grew by an impressive 4 per cent (£1,300) in 2024-25.

This living standards bust, boom and bleak outlook could leave the 2020s as the first decade of the modern era to witness no improvement in disposable incomes across Britain. While median incomes grew by 18 per cent during the noughties, and by 9 per cent during the 2010s, the Foundation projects zero growth between 2019-20 and 2029-30.

The end of the 2020s is still a long way off, and the economic outlook can improve, with policy offering a helping hand. Should the current period of strong wage growth continue and employment return to its previous peak, repeating the upside living standards surprise of the 2010s, typical income growth over the rest of the decade would triple to 3 per cent.

An uplift in economic growth would boost incomes for many British families, but it would not do enough to lift living standards for the poorest half of the country. There is more the Government can do to put money in people’s pockets.

The report finds that if the Government were to end the two-child limit – which could be funded by a one year extension to the personal tax threshold freeze – average incomes for the poorest half of the country would rise by £200 instead of falling between now and the end of the decade, as 500,000 children are lifted out of poverty. The Government is right to prioritise growth to lift living standards, but a stronger economy would need to be combined with effective Government policy to boost living standards for all British households.

Adam Corlett, Principal Economist at the Resolution Foundation said “The living standards story of the decade so far has been bust and boom, with Covid-19 and a cost of living crisis followed by a much-needed recovery last year. But the rest of the decade looks bleak, with typical household incomes set to grow by just 1 per cent over the next five years.

“There are winners and losers within this weak outlook, with pensioner incomes set to grow by a healthy 5 per cent over the rest of the decade, while the poorest half of the population are set to see their incomes fall.

“But a stronger economy and the right policy interventions can brighten this outlook. Maintaining strong wage growth and returning to pre-pandemic employment levels would make middle-income Britain far better off, while ending the two-child limit can lift living standards for poorer families.”