War in Middle East threatens bumper year of living standards growth for lower-income families 4 March 2026 The UK is set for a decent but one-off increase in living standards this year, and a bumper rise for lower-income families. But a fresh energy price shock risks ruining this good news, while the medium-term picture for living standards remains bleak, according to the Resolution Foundation’s overnight analysis of Spring Forecast 2026 published today (Wednesday). With no new policies announced yesterday, the Foundation has used the latest OBR forecasts for inflation, wages, unemployment, interest rates, house prices and rents, coupled with the impact of personal tax and benefit policies that are due to take effect over the next four years, to build its own for forecast for living standards growth over the Parliament. The good news is that living standards for typical working-age families are set to grow by a decent 0.9 per cent, or £300, over the coming year (between 2025-26 and 2026-27). There is better news still for lower-income households, whose living standards are set to grow by 3.9 per cent, or £800. This would be the second strongest year for living standards in the past two decades for poorer families. The rise is driven by the abolition of the two-child limit and the first ever permanent above-inflation increase in the basic rate of Universal Credit. However, this good news risks being overshadowed by the domestic fallout from events in the Middle East. If recent rises in the price of oil and gas were to be sustained they could add around a percentage point to inflation and £500 on to typical annual energy bills. The latter increase would be particularly damaging for poorer families as they spend more than twice as much of their budgets on energy as richer households. And while the near-term picture for living standards is positive, the picture for the remainder of the Parliament is far bleaker. The Foundation projects that after next year, the incomes of typical working-age families are projected to fall by 0.5 per cent, or £150, for the remaining two years of the Parliament (2026-27 to 2028-29). This bleak outlook for living standards is driven by the OBR’s pessimistic forecast for wages, which are set to grow by just 1.4 per cent over the next three years (Q4 2025 to Q4 2028) in real terms. The Foundation’s forecast for child poverty follows a similar pattern. A significant fall in 2026-27 of 3 percentage points, or 480,000 children, is followed by a steady rise over the next three years. Over the Parliament as a whole (2024-25 to 2029-30) child poverty is set to fall marginally by 0.5 percentage points. As ever with economic forecasts, there are upside and downside risks. The war in the Middle East has brought downside risks to the fore, with inflation, interest rates and debt interest costs all set to be higher if the spike in oil and gas prices is sustained. But there is a big upside scenario too – stronger wage growth. The Foundation finds that should real wages follow the path forecast by the Bank of England and rise by 3.5 per cent over the next three years (rather than 1.4 per cent in the OBR forecast), the living standards of typical working age families would rise by £200 over the final two years of the Parliament (2026-27 to 2028-29), rather than fall by £150. The fiscal prize would also be huge too – with borrowing reduced by up to £20 billion a year. So, while the Government will need to focus on managing the near-term economic uncertainty and possible energy price shocks, it shouldn’t lose sight of the big living standards benefits of stronger productivity-based economic growth that would deliver higher pay rises. Ruth Curtice, Chief Executive at the Resolution Foundation, said: “The immediate economic outlook for Britain is highly uncertain, with yesterday’s forecasts already looking out of date, while the living standards picture for the rest of the Parliament is very lopsided. “This coming year is set to be a decent one for living standards, and a bumper one for poorer families, as wages and benefit support rise above the level of inflation. But a fresh energy price shock risks puncturing this good news. “With wage growth set to tail off, the living standards picture for the rest of the Parliament is bleak. This should remind policy makers of the need to both navigate near-term uncertainty and support productivity-based economic growth over the medium term. That is the only way to meaningfully lift living standards throughout Britain.” Notes to Editors The Foundation’s living standards outlook differs slightly from the OBR’s RHDI projection. This is because it uses a slightly different measure of income, focuses on working-age families, and looks at growth across the income distribution. We calculate income change across Parliaments from the financial year before the election to the financial year before the next election, so that changes made in a government’s first year in power are reflected (so 2023-24 to 2028-29 for the current Parliament). We calculate changes in child poverty over the Parliament between 2024-25 and 2029-30 to be consistent with the Government’s Child Poverty Strategy.
