UK household disposable incomes fall as price rises and tax changes bite
UK households saw real disposable income drop 0.8% in the first quarter of 2026, driven by rising inflation and higher capital gains tax receipts, while GDP growth was revised slightly downward.
The Office for National Statistics (ONS) reported that real household disposable income (RHDI) fell by 0.8% in the first three months of 2026 compared with the previous quarter. This marks the fourth decline in the last five quarters. The drop was attributed to an increase in the consumer prices index (CPI) measure of inflation and higher capital gains tax receipts.
The ONS confirmed early estimates that the economy grew by 0.6% in the first quarter, but annual GDP growth was revised down from 1.4% to 1.3%. All three main sectors of the economy – services, production, and construction – registered growth, with the largest contribution from services, which expanded by 0.8%.
The household saving ratio, which measures the proportion of disposable income that households save rather than spend, edged down from 9.6% in the last quarter of 2025 to 8.9%. For comparison, during the pandemic lockdowns, the ratio peaked at 27.5%. Since the last election, it has been steadily declining, though it remains above pre-pandemic levels.
Phil Shaw, an economist at Investec, said the first quarter "marked a decent start to 2026", but predicted that attention would soon turn to the negative impact from the recent rise in energy prices. He expects growth to come close to a halt in the third quarter, although the level of the saving ratio will give households a cushion to absorb cost increases. He also noted that the Bank of England is likely to view the figures as showing the economy remains robust, allowing it to keep the base rate at 3.75% for the rest of the year, with rate cuts expected only in 2027.
