UK disposable income rises as benefits payouts soar ahead of wages
The average UK household’s disposable income increased in the second quarter of the year driven by a rise in benefit payouts.
Real household disposable income per head – which measures the average spending and saving capacity of Brits – increased by one per cent in the second quarter to £6,577, new figures from the Office for National Statistics (ONS) have shown. This followed a 0.8 per cent contraction in the previous three months.
But the rise was led by a £5.3bn jump in social benefits, which easily outstripped wages and salaries at £2.8bn. The increase was partly driven by April’s annual uprating of state pensions and working-age benefits.
Fresh figures from the ONS also showed Andy Burnham inherited an economy growing faster than previously thought when he took over as Prime Minister earlier this year.
The statistics body revised second quarter growth up by 0.1 percentage point to 0.5 per cent, meaning the new Prime Minister was given an economy expanding at a faster level than had been originally recorded when he entered Downing Street weeks later.
But this was caveated with a downgrade for 2025’s figures. The ONS slashed GDP for 2025 to 1.2 per cent, a revision of 0.1 percentage points from the previous estimate.
Liz McKeown, director of economic statistics at the ONS, said: “Growth for 2025 as a whole was a little lower than previously estimated, with the profile of growth across the quarters also revised.
“However, stronger services growth in the latest quarter means the economy is now slightly larger than previously estimated.”
Labour facing gloomier growth picture next year
Economists have warned Labour will be tested with a bleaker fiscal picture for the second half of the year.
“The next six months looks tougher with potential interest rate rises, a sharp increase in inflation and another tax raising budget all to come. That will drag heavily on growth over the winter,” Thomas Pugh, chief economist at RSM UK, said.
Last week, Burnham and Chancellor John Healey were handed a blow after the world’s leading economic forecaster projected the UK economy would grow slower than expected.
The Organisation for Economic Co-operation and Development (OECD) predicted that the UK economy would grow by just one per cent next year, marginally down from a previous forecast of 1.1 per cent. But this did come as the Paris-based think tank revised its growth forecast for the current year up to 1.1 per cent from 0.9 per cent.
Inflation has managed to undershoot expectations this year, but the return to the Bank of England’s target of two per cent could take longer due to the continuation of conflicts.
The OECD had previously said inflation could hit 3.6 per cent this year but inflation is now set to average 3.1 per cent this year. It will fall to 2.6 per cent next year, according to forecasts. Inflation across the G20 was expected to be 3.6 per cent next year, higher than previously expected.
The figures provide a glum backdrop for Healey’s first Budget, set for 28 October.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “Ultimately, the Budget will be the first real test of whether the Chancellor can square fiscal discipline with the need to support growth.
“Markets will be looking for a credible plan, and are unlikely to give the government much benefit of the doubt. Stronger growth would make that task significantly easier, but today’s figures suggest the road to a more durable recovery remains a long one.”
Professor David Miles, who is one of three top members at the Office for Budget Responsibility (OBR), has warned Healey that a rise in the tax burden beyond 37 per cent of GDP could lead to additional costs on incentives in growth.
Miles said it would be more costly for the government to lift the tax burden from 40 to 45 per cent of GDP than it would be to raise it from 35 to 40 per cent in the short term.
Economists have revised their projections for Healey’s fiscal headroom following changes to growth forecasts and increased borrowing costs in the last few months.
The buffer could fall to as low as around £5bn, according to the Resolution Foundation, which would pile pressure on Healey to increase taxes or slash spending in order to rebuild it.