![\"A](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/06\/1372.jpg\")
A chart showing UK disposable income per head Photograph: ONS<\/p>\nIntroduction: UK living standards fall despite rise in growth<\/p>\n
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.<\/p>\n
UK living standards fell in the first quarter of the year, even though the economy grew, highlighting the challenge facing Andy Burnham as he pledges to \u201clift the country\u2019 back up\u201d.<\/p>\n
New data from the Office for National Statistics this morning shows that real household disposable income per head shrunk by 0.8% in the first quarter of 2026, showing that people were left with less money to spend after taxes.<\/p>\n
The ONS reports that while pay and income from property rose in the quarter, this was more than wiped out by higher taxes on wealth and income, and a fall in \u2018net social contributions\u2019.<\/p>\n
A chart showing UK disposable income per head Photograph: ONS<\/p>\n
The households\u2019 saving ratio \u2013 which estimates the percentage of disposable income Britons save rather than spend \u2013 fell by 0.7 percentage points to 8.9%, driven by a fall in the contribution of non-pension saving. That indicates people had less money to put aside, as rising prices pushed up the cost of living.<\/p>\n
In better news, the ONS confirmed that the UK economy grew by 0.6% \u2013 that is the fastest growth recorded by any G7 country in January, something for Rachel Reeves to cling onto as Burnham weighs up who to appoint as chancellor should be succeed Sir Keir Starmer as PM soon (as appears likely).<\/p>\n
But the fall in disposable income highlights that GDP growth alone is not enough to create a healthy economy that works for everyone.<\/p>\n
Director of Economic Statistics Liz McKeown says:<\/p>\n
double quotation mark\u201cOur latest set of figures show no revision to economic growth in the first quarter of this year. However, growth for 2025 was revised down a little.<\/p>\n
\u201cServices were the main driver of growth in the latest quarter, with strength in computer programming, wholesale and advertising only partially offset by falls in rental companies and recruitment agencies. Production and construction also both grew overall, although construction only partly reversed its recent weakness.<\/p>\n
\u201cThe household saving ratio continued to ease at the start of 2026 but remains above its pre-pandemic levels.\u201d<\/p>\n
The agenda<\/p>\n
7am BST: ONS releases UK quarterly accounts for Q1 2026<\/p>\n
7am BST: German retail sales for May<\/p>\n
8.55am BST: German unemployment report for June<\/p>\n
2pm BST: US house price index for April<\/p>\n
Share<\/a><\/p>\n Key events<\/p>\n A ‘decent’ start to the year, and good news on UK inflation too<\/p>\n The UK\u2019s 0.6% growth in January-March was \u201ca decent start to 2026\u201d, reports Investec\u2019s Philip Shaw.<\/p>\n However\u2026.<\/p>\n double quotation markAttention will soon turn to the scale of any negative impact of the recent surge in energy prices. Indeed we envisage growth coming close to a halt in Q3, although the level of the saving ratio will give households in aggregate a cushion to absorb cost increases without an abrupt interruption in spending.<\/p>\n Thereafter the unwinding of the energy price spike should form a tailwind and help to support expenditure and economy activity more widely.<\/p>\n Happily for UK households, though, Investec have lowered their forecast for UK inflation this year<\/p>\n Shaw explains:<\/p>\n double quotation markWe have lowered our forecast of the peak in inflation over the remainder of the year from 4.0% to 3.1% though, thanks to the sharp decline in energy prices and to May\u2019s CPI data, which showed evidence of considerable disinflationary pressures in the pipeline prior to the Iran war. We feel more confident now that the 2.0% target will be in sight by end-2027.<\/p>\n Share<\/a><\/p>\n High inflation means UK living standards are only likely to rise slightly through 2026, after falling in January-March, predicts Rob Wood, chief UK economist at Pantheon.<\/p>\n Wood told clients:<\/p>\n double quotation markThe income side of the national accounts showed that real household disposable income dropped by 0.8% quarter-to-quarter in Q1, cutting a chunk from the 1.3% gain in Q4 2025, as higher inflation ate into real household earnings.<\/p>\n Sticky inflation over the coming year\u2014despite the recent drop in energy prices\u2014will mean that real household disposable income grows only slowly for the rest of the year.<\/p>\n Wood also predicts that households could keep running down their savings to support growth:<\/p>\n double quotation markThe household saving rate was estimated to have fallen to 8.9% in Q1, down from 9.6% in Q4 2025, as households smoothed through a fall in real incomes, keeping spending going.<\/p>\n The saving rate still remains well above its 2015-to-2019 average of 6.5%, and the latest money and credit data for May\u2014released yesterday\u2014suggest that households are willing to save less over the coming months in order to keep smoothing their spending through the energy price shock. So, we continue to think that consumers\u2019 spending can help GDP growth hold up over H2.<\/p>\n Share<\/a><\/p>\n The UK economy is still struggling to generate \u201cconsistent and sustainable growth,\u201d warns Jonathan Raymond, investment manager at Quilter Cheviot, despite the 0.6% rise in GDP in the January-March quarter.<\/p>\n Raymond explains:<\/p>\n double quotation mark\u201cGDP fell by 0.1% in April, suggesting activity has started to soften as we moved into the second quarter. That shift highlights how quickly conditions have changed and raises the prospect that the first quarter may prove to be a peak for growth rather than the start of a sustained recovery.<\/p>\n \u201cThe broader backdrop remains uncertain. While a ceasefire between the US and Iran has helped ease immediate pressure on energy markets, it remains a fragile agreement with key details still unresolved. That leaves the risk of renewed volatility in energy prices firmly in place, which continues to cloud the outlook for inflation and continues to negatively impact consumer and business confidence.<\/p>\n \u201cAt the same time, the UK is entering a period of heightened political uncertainty. The prospect of an Andy Burnham-led government has already prompted closer scrutiny from markets, particularly around fiscal policy and borrowing, and any change in direction risks feeding through into financing conditions for the wider economy.<\/p>\n \u201cThis leaves the Bank of England in a difficult position. Growth is showing early signs of slowing, but inflation risks remain sensitive to energy prices and policy uncertainty. Even a solid first quarter does little to shift the broader picture, with the UK economy still struggling to generate consistent and sustainable growth.\u201d<\/p>\n Share<\/a><\/p>\n Britain\u2019s trade deficit was slightly larger than first estimated in January-March, today\u2019s national accounts show.<\/p>\n Excluding non-monetary gold and other precious metals, the trade deficit was 1.0% of nominal GDP in Quarter 1 2026, up from a previous estimate of 0.9%.<\/p>\n Share<\/a>UK energy price cap going up tomorrow<\/p>\n UK households will come under more financial pressure tomorrow, when Britain\u2019s energy price cap rises.<\/p>\n The limit on how much providers can charge for electricity and gas will go up by 13% on 1 July, to the equivalent of \u00a31,862 a year for a typical bill.<\/p>\n Adam Scorer, chief executive at National Energy Action, says this increase should be a \u2018red energy warning\u2019:<\/p>\n double quotation mark\u2019Tomorrow\u2019s price cap rise should be a red energy warning. Energy inefficient homes take lives in winter and will increasingly threaten the most vulnerable in summer; London Ambulance Service had its busiest day on record on Friday.<\/p>\n \u2018Fuel poverty means many cannot experience a comfortable and safe temperature at home, because the building fabric makes it impossible or the cost of doing so makes it prohibitive. This is a public health emergency for the most vulnerable and needs to be addressed as such.<\/p>\n \u2018Tomorrow\u2019s cap rise is another blow for millions already struggling. The legacy of the energy crisis is millions of households locked into debt they cannot repay, and that is pushing up bills for everyone. If we fail to act, we risk seeing more households forced onto prepayment and effectively cut off from energy. That cannot be the answer to a problem caused by unaffordable bills.<\/p>\n \u2018We need urgent action to clear this debt and stop costs being baked into the system. The right response is to scale debt relief. As our new paper, Clearing the Decks<\/a>, sets out, that means enabling and expanding Ofgem\u2019s Debt Relief Scheme with additional funding so more of this debt can be cleared, reducing harm and lowering costs across bills.\u2019<\/p>\n Share<\/a>2025 growth revised down<\/p>\n Today\u2019s data also shows that the UK economy grew less than previously thought in the first calendar year of the Labour government.<\/p>\n The ONS now estimates that UK GDP rose by 1.3% during 2025, down from its previous estimate of 1.4% growth.<\/p>\n As you can see on this chart, the ONS lowered its estimate for growth in the second half of 2025, while also nudging it up a little for the second quarter of last year.<\/p>\n Photograph: ONSShare<\/a><\/p>\n Updated at\u00a002.52 EDT<\/p>\n Table: How UK topped G7 growth table in Q1<\/p>\n The UK\u2019s growth of 0.6% in January-March outpaces the rest of the G7, just!<\/p>\n The US and Japan were close behind, with quarterly growth of 0.5%, while Italy and Germany both grew by 0.3%.<\/p>\n Canada stagnated, while France is on the brink of a technical recession after its GDP fell by 0.1% in Q1 2026.<\/p>\n A chart showing GDP growth across the G7 in Q1 2026 Photograph: ONSShare<\/a>Why real household disposable income per head fell<\/p>\n The fall in UK real household disposable income (RHDI) in the first quarter of 2026 came despite increase in income in these areas:<\/p>\n compensation of employees, by \u00a38.2bn<\/p>\n net property income, by \u00a32.1bn<\/p>\n gross mixed income, by \u00a31.5bn<\/p>\n But\u2026.this was offset by an increase in taxes on income and wealth, by \u00a36.9bn, and a fall in net social contributions, by \u00a35.1bn.<\/p>\n The Office for National Statistics says:<\/p>\n double quotation markThe impact of the reduction in the tax-free allowance for capital gains, and the resulting increase in Capital Gains Tax payments, contributed to the increase in taxes on income and wealth.<\/p>\n