Families' disposable income slumps in blow to Labour
British families' disposable income has fallen for the first time in nearly two years, delivering a blow to Sir Keir Starmer's pledge to raise living standards.
Rising inflation led to households' real disposable income per head falling by 1pc in the first three months of the year, which dropped for the first time since summer 2023
That was despite the economy expanding by 0.7pc over the quarter, in part because of a 2pc jump in wage growth.
The latest disposable income data will serve as a setback for the Prime Minister, who last year made higher living standards one of his six key targets.
The Government relies on real disposable household income for tracking its progress against this goal, with the metric measuring how much families have left to spend after tax.
New figures from the Office for National Statistics (ONS) show that disposable income fell by 1pc in the first quarter after previously rising by 1.8pc in the final three months of 2024.
This will pile pressure on Sir Keir in one of his most difficult periods in Downing Street, as he has been forced into a U-turn on planned welfare reforms after a revolt from backbench Labour MPs.
He is now preparing to unveil a costly package of concessions on disability benefits, piling further strain on Britain's public finances after he also backtracked on planned cuts to winter fuel payments.
If the economy fails to improve quickly, Rachel Reeves, the Chancellor, may be forced to raise taxes in her upcoming autumn Budget.
In a small reprieve for the Prime Minister, the ONS confirmed on Monday that the economy grew a healthy 0.7pc in the first three months of 2025, the fastest in the G7.
Households also saved slightly less, with the share of disposable income going straight into savings accounts falling to 10.9pc, down from 12pc at the end of last year.
Any further falls could raise hopes that higher spending will give the economy a much-needed boost, as families are still sitting on big nest eggs from Covid.
However, economists warned that tax rises, the threat of tariffs and geopolitical challenges mean the picture looks less rosy for the rest of the year.
Thomas Pugh, chief economist at consultancy RSM, said: 'The economy is facing more headwinds in the second half of the year than it did in Q1, uncertainty remains elevated, inflation will be around 3.5pc and wage growth will probably slow further.'
The ONS said the fall in disposable incomes was 'mainly' because of high inflation.
Meanwhile, the other metric that the Government uses to track living standard progress, GDP per head, rose by 0.6pc over the same period.
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