Resolution Foundation predicts three-year dip in UK household disposable income

The Resolution Foundation, an independent economic think‑tank, has warned that the average UK household is set to see its disposable income shrink over the next three years, signalling a stretch of declining living standards that analysts describe as “painful”.

The forecast, based on Treasury projections of wages, inflation and tax policy, shows that after a brief rebound following the pandemic, real purchasing power will begin to erode again. Even modest wage growth will be outpaced by price rises, leaving families with less money after taxes and essential costs.

The warning comes at a time when the UK is still grappling with the after‑effects of the COVID‑19 crisis, a historic surge in energy prices and a series of fiscal tightening measures. Over the past two years, real wages have barely kept pace with inflation, and the labour market, while relatively tight, has not translated into proportionate pay rises for many workers.

A sustained dip in disposable income could force households to curb spending on non‑essential items, delay major purchases, and increase reliance on credit. Low‑income families are likely to feel the pressure most acutely, raising concerns about a potential rise in poverty rates and greater strain on the welfare system.

Policymakers have taken note. The government’s current budget plans focus on fiscal consolidation, but the Resolution Foundation and other research bodies are calling for targeted interventions—such as temporary tax relief, stronger support for low‑pay workers and measures to boost productivity—to offset the projected shortfall.

The think‑tank says the next few years will be a crucial test of the UK’s economic strategy. If wage growth can be accelerated and inflation brought under control, the downward trend could be halted. Until then, analysts caution that households should prepare for tighter budgets, and that the political debate over how to protect living standards is likely to intensify.