Expert comment: the economy may be doing better on paper, but are households any better off?

Charles comments: “The IMF’s upgrade to the UK growth forecast is welcome news, but there is an important distinction between an economy that is growing and a population that is feeling better off. 

“Growth matters, but what counts is whether it translates into improved living standards. The simple test is whether households are finding it easier to pay their bills, afford the weekly shop and make ends meet.

“The IMF now expects the UK economy to grow by 1.3% in 2026, up from its previous forecast of 1%, before slowing to 1.2% in 2027. This suggests the economy is more resilient than expected, although the outlook remains modest and vulnerable to higher energy prices and borrowing costs.

“For households, GDP figures do not pay the bills. What matters is real household disposable income: the purchasing power people retain after accounting for taxes and inflation. If wages fail to keep pace with living costs, families can feel financially worse off even when the headline economic figures look more encouraging.

“And there is another cloud on the horizon. Higher energy prices could push inflation up, potentially limiting the scope for interest rate cuts and prolonging pressure on mortgage holders and other borrowers. Stronger growth does not automatically mean cheaper bills or greater financial security.

“Nevertheless, this forecast upgrade should not be dismissed. It suggests the UK economy has underlying resilience and gives the Chancellor a more encouraging backdrop ahead of the Autumn Budget. 

“The challenge now is to turn that resilience into something people can feel. That means encouraging investment and productivity, supporting sustainable real wage growth and targeting assistance towards households most exposed to rising costs. It also means prioritising sustainable economic growth over short-term measures that offer temporary relief without addressing deeper economic weaknesses.

“Ultimately, people do not experience GDP growth; they experience their bank balances. The IMF’s upgrade provides grounds for cautious optimism, but what matters most is whether stronger economic performance translates into greater purchasing power, financial security and an improved standard of living. Until economic progress shows up in people’s pockets, the recovery will remain a promise rather than a reality.”