UK households experienced a decline in disposable incomes in the first quarter of 2026, with real disposable income falling by 0.8% due to rising prices and increased capital gains tax, according to the Office for National Statistics (ONS). This marks the fourth quarter within the last five where disposable incomes have decreased. The ONS also reported that the economy grew by 0.6% in the same period, but GDP growth for the year was revised down from 1.4% to 1.3%.
Key Details
All three major sectors—services, production, and construction—contributed positively to the economic growth, with services expanding by 0.8%. Thomas Watts, an investment manager at Julius Baer, noted that the balanced composition of growth was encouraging and could provide reassurance to policymakers. The household saving ratio also declined slightly from 9.6% to 8.9%, indicating a shift in consumer behavior as households adjust to economic pressures.
Background
Despite the challenges, Sainsbury's CEO Simon Roberts indicated that grocery inflation has not been as severe as anticipated, with shop price inflation remaining steady at 1.2% year-on-year in June. This has been attributed to price matching with competitors like Aldi and a cautious consumer sentiment amid ongoing economic uncertainties. Sainsbury's reported a 2.7% increase in sales to £9.1 billion for the three months ending June 20, with grocery sales rising by 3.6%.
Related coverage: UK Pubs and Restaurants Face Financial Strain Amid VAT.
Sources: theguardian.com, businessinsider.com.
The decline in disposable incomes could lead to reduced consumer spending, particularly in non-essential sectors, impacting retailers and service providers. Investors will watch for upcoming economic data releases, including inflation figures and consumer confidence indicators, to gauge the ongoing effects on household budgets.