Think Tanks Warn of 'Painful,' 'Depressing' Years Ahead Amid UK Cost-Of-Living Crisis

British living standards are on track for their weakest decade on record as higher energy costs drive up inflation and erode household spending power, the UK's budget watchdog has warned.

The Office for Budget Responsibility (OBR), in its outlook published on 28 October 2026, expects real household disposable income per person to fall slightly in the near term.

By 2030–2031, that measure is forecast to stand only 2 per cent above its pre-pandemic level and more than 0.75 per cent below the watchdog's March projection. The figures point to limited gains in living standards despite years of recovery.

Disposable income measures the money households have available after taxes and benefits, while adjusting for inflation shows how much that money can buy.

Per the BBC, think tanks warned that citizens now face 'painful' and 'depressing' years ahead, pertaining to the forecast. In an official press release, Institute for Fiscal Studies (IFS) Director Helen Miller noted that this decade was 'the worst decade for growth in household incomes on record.'

Why Energy Prices Are Squeezing Spending Power

The UK imports more energy than it exports, so higher energy prices increase the cost of imports, push up inflation and reduce households' purchasing power. Consumer Prices Index (CPI) inflation is forecast to average 3.4 per cent in 2027, compared with the 2 per cent anticipated in March, according to the BBC.

The outlook assumes that inflation will return to the 2 per cent target halfway through 2028 if energy prices fall in line with financial market expectations. This would mean prices rising more slowly but would not reverse the increases that have already taken place.

Economic Recovery Loses Momentum in 2027

Growth in real gross domestic product (GDP), which measures economic output after inflation, is expected to slow from 1.2 per cent in 2026 to 1 per cent in 2027.

The latter forecast is 0.6 percentage points below the March projection. Economic output is not expected to regain its previously forecast level until 2030, assuming the anticipated decline in energy prices occurs.

The OBR described the UK's economic and fiscal position as 'very challenging'. Repeated shocks since 2008 have combined with weak growth and heavy borrowing to push government debt higher relative to the economy.

Higher Borrowing Delays Progress on Public Finances

Rising interest rates and inflation add an average £11 billion a year to forecast borrowing before government policy changes.

Those measures add a further £8 billion in 2026–27, £4 billion in 2027–2028 and £400 million in 2028–2029. They subsequently reduce borrowing by an annual average of £7 billion.

Borrowing still falls to around 2 per cent of GDP over the forecast period, but the initial reduction proceeds more slowly than previously planned.

Public sector net debt peaks at around 97 per cent of GDP in 2028–2029 before easing to 96 per cent in 2031–2032.

The government meets its target for a current budget surplus in 2029–2030 with £15 billion to spare. Its separate target for public sector net financial liabilities (PSNFL) to fall relative to GDP that year has a £24 billion margin.

Energy, Interest Rates and Productivity Could Change the Outlook

The central forecast sits within a wide range of possibilities, with substantially better and worse outcomes considered broadly equally likely.

A higher, longer-lasting energy price peak could add £17 billion to borrowing in 2027–2028. A lower price path could instead cut it by £12 billion.

A one percentage point interest-rate shift could increase or decrease debt interest costs by £16 billion. Productivity growth half a percentage point above or below forecast could leave borrowing as much as £50 billion lower or £40 billion higher.

Meanwhile, inflation, public sector pay and ambitions, including defence, continue to put pressure on departmental budgets.