The ongoing conflict in the Middle East poses a significant threat to the anticipated growth in living standards for the United Kingdom's poorest families, according to a stark warning from a leading economic think tank. Overnight analysis conducted by the Resolution Foundation following the Spring Statement reveals a precarious economic outlook, where initial gains could be swiftly undermined by geopolitical instability.
Spring Statement Analysis Reveals Mixed Economic Forecast
The Resolution Foundation's detailed examination of the Spring Statement indicates that the nation is poised for an overall increase in living standards throughout this year. However, this positive trajectory faces severe jeopardy from the escalating conflict in the Middle East, which has the potential to trigger a sharp surge in global energy prices. Chancellor Rachel Reeves, while announcing no new fiscal policies yesterday, emphasised that her economic plan was "more necessary than ever before in a world of uncertainty," directly referencing the Iran conflict as a threat to economic stability.
The Office for Budget Responsibility has concurrently revised its economic projections, indicating that Gross Domestic Product will increase by a modest 1.1% in 2026. This figure represents a downward adjustment from the 1.4% growth forecast in November. In a contrasting move, the fiscal watchdog upgraded its forecasts for the subsequent years, anticipating growth of 1.6% in both 2027 and 2028, up from the previously estimated 1.5%.
Projected Living Standards Growth for Working Families
Delving into the government's plans, the Foundation forecasts that living standards for typical working-age families will experience a growth of 0.9%, equating to approximately £300, over the coming financial year spanning 2025-26 to 2026-27. The outlook appears even more promising for lower-income households, with living standards projected to rise by a substantial 3.9%, or £800. This potential increase would mark the second strongest annual improvement in living standards for poorer families witnessed over the past two decades.
This anticipated boost is attributed to recent policy changes, including the government's decision to scrap the controversial two-child limit on benefits and the implementation of the first permanent above-inflation increase to the basic rate of Universal Credit. These measures are designed to provide enhanced financial support to vulnerable households.
Short-Term Gains Versus Long-Term Economic Risks
Despite the encouraging short-term projections, the Resolution Foundation cautions that these improvements may prove transient. The incomes of typical working-age families are projected to decline by 0.5%, or £150, during the remaining two years of the current parliamentary term from 2026-27 to 2028-29. Furthermore, the think tank warns that any economic progress is at risk of being overshadowed by domestic repercussions stemming from events in the Middle East.
The Foundation's analysis suggests that if recent increases in oil and gas prices are sustained, they could contribute approximately an additional 1% to the inflation rate. This scenario would impose an extra financial burden of around £500 on typical annual household energy bills, severely impacting disposable income and eroding living standards.
Expert Commentary on Economic Uncertainty
Ruth Curtice, Chief Executive at the Resolution Foundation, provided a sobering assessment of the economic landscape. "The immediate economic outlook for Britain is highly uncertain, with yesterday's forecasts already appearing out of date, while the living standards picture for the remainder of the Parliament is markedly lopsided," she stated.
"The coming year is set to deliver decent living standards growth, particularly a bumper period for poorer families, as wages and benefit support rise above the level of inflation. However, a fresh energy price shock threatens to puncture this positive news. With wage growth expected to tail off, the living standards outlook for the rest of the Parliament is bleak. This situation should serve as a stark reminder to policymakers of the dual necessity to navigate near-term uncertainty while simultaneously supporting productivity-based economic growth over the medium term. That remains the only viable pathway to meaningfully elevate living standards across the entirety of Britain."
