Introduction: UK living standards fall despite rise in growth
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK living standards fell in the first quarter of the year, even though the economy grew, highlighting the challenge facing Andy Burnham as he pledges to “lift the country’ back up”.
New data from the Office for National Statistics this morning shows that real household disposable income per head shrunk by 0.8% in the first quarter of 2026, showing that people were left with less money to spend after taxes.
The ONS reports that while pay and income from property rose in the quarter, this was more than wiped out by higher taxes on wealth and income, and a fall in ‘net social contributions’.
The households’ saving ratio – which estimates the percentage of disposable income Britons save rather than spend – fell by 0.7 percentage points to 8.9%, driven by a fall in the contribution of non-pension saving. That indicates people had less money to put aside, as rising prices pushed up the cost of living.
In better news, the ONS confirmed that the UK economy grew by 0.6% – that is the fastest growth recorded by any G7 country in January, something for Rachel Reeves to cling onto as Burnham weighs up who to appoint as chancellor should be succeed Sir Keir Starmer as PM soon (as appears likely).
But the fall in disposable income highlights that GDP growth alone is not enough to create a healthy economy that works for everyone.
Director of Economic Statistics Liz McKeown says:
“Our latest set of figures show no revision to economic growth in the first quarter of this year. However, growth for 2025 was revised down a little.
“Services were the main driver of growth in the latest quarter, with strength in computer programming, wholesale and advertising only partially offset by falls in rental companies and recruitment agencies. Production and construction also both grew overall, although construction only partly reversed its recent weakness.
“The household saving ratio continued to ease at the start of 2026 but remains above its pre-pandemic levels.”
The agenda
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7am BST: ONS releases UK quarterly accounts for Q1 2026
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7am BST: German retail sales for May
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8.55am BST: German unemployment report for June
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2pm BST: US house price index for April
Key events
Barclays buys Canary Wharf HQ for £750m
Julia Kollewe
Barclays has bought its Canary Wharf headquarters in London for £750m, in one of the biggest office acquisitions in recent years.
The UK bank has acquired a 999-year lease in its global headquarters at One Churchill Place from Canary Wharf Group, securing control beyond the current lease which runs to 2039. It said this would give it greater certainty over its long-term occupancy costs.
Barclays has been refurbishing the 1m square foot building to create more flexible space as working patterns change. It has served as the bank’s global headquarters since 2005.
C.S. Venkatakrishnan, the Barclays chief executive, said:
“This acquisition gives us long-term certainty, greater flexibility over our London footprint and reinforces our continued confidence in London as one of the world’s leading global financial centres.”
Shobi Khan, chief executive of Canary Wharf Group, hailed the decision as a “strong endorsement of both Canary Wharf and London”. He added:
“It underlines the long-term confidence that leading businesses continue to place in the district as a location where they can invest, grow and bring people together.”
Khan has sought to build life science and technology clusters to breathe new life into the docklands estate in east London, where the property company transformed wasteland into a financial centre to rival the City in the 1990s. It has also built thousands of homes and tried to bring a buzz to the area throughout the week by introducing free music and arts festivals, as well as open water swimming, paddleboarding and go karting.
The area became a ghost town during Covid lockdowns and was slow to recover. In recent years a number of banks and law firms headquarted in Canary Wharf, including HSBC and Clifford Chance, have announced they would move back to the City to smaller buildings, as they downsized amid hybrid working.
However, HSBC leased extra space in Canary Wharf last summer after a push to bring staff back to the office at least three days a week, rising to four days for senior managers. While it confirmed its move back to the City in 2027, it now plans to operate from several offices in London, including Canary Wharf.
UK housebuilders face £4.5bn class action over house prices
The drop in UK housebuilder shares this morning (see here) also follows the launch of a £4.5bn class action over claims that alleged anti-competitive practices resulted in higher prices for homebuyers.
The claim is being led by Mark McLaren, a former legal affairs manager at the consumer group Which?, against Barratt Redrow, Bellway, The Berkeley Group, Bloor Homes, Persimmon, Taylor Wimpey and the Vistry Group, The Times reports.
It comes after seven housebuilders agreed last summer to pay £100m to affordable housing schemes after the UK competition watchdog found evidence that they may be sharing commercially sensitive details that affect the price of homes.
UK growth is ‘potential parting boost for Rachel Reeves’
Encouragingly, all three main sectors of the UK economy – service, production and construction – grew in the first quarter of this year, according to this morning’s national accounts.
The largest contribution from the services sector, which grew by 0.8%.
Thomas Watts, MPS portfolio manager at wealth manager Julius Baer, says:
“A potential parting boost for Rachel Reeves: UK GDP came in broadly in line with expectations for the first quarter, rising by 0.6%.
Encouragingly, the composition of growth was more balanced than in recent quarters. Both construction and production posted gains of 0.2%, signalling a modest but welcome broadening in economic momentum.
Services, the traditional engine of the UK economy, remained the standout performer, expanding by 0.8%. However, the fact that all three main sectors contributed positively will be particularly reassuring for policymakers, both at Threadneedle Street and in Downing Street.”
Three in five UK homes listed this year not selling
The UK housebuilding sector has been hit by weakening demand this year with three in five homes listed since January yet to sell, according to property portal Zoopla.
Zoopla has also reported that buyer demand has fallen by 15% year-on-year across the UK, due to “the combination of political uncertainty and higher borrowing costs”.
Zoopla reports:
Higher mortgage rates and political uncertainty have shrunk the pool of committed home buyers, pushing sales agreed to 7% below last year. A change of Prime Minister and questions over future tax and spending priorities in the Autumn Budget have added to the uncertainty.
At the same time, buyer demand has fallen by 15% YoY, with more people taking a wait-and-see approach until the outlook becomes clearer. However, this is not the first time that the market has absorbed economic and political uncertainty, with the 2022 mini-budget triggering a sharp fall in sales agreed of more than 20%, with the market recovering once mortgage rates stabilised.
This may have knocked shares in housebuilders this morning; Persimmon (-3.9%) and Barratt Redrow (-3.6%) are leading the fallers on the FTSE 100 index.
There’s some good news for Germany, as it reels from its exit from the World Cup last night.
The number of unemployed people in Germany fell by 1,000 in June, labour office figures show, better than forecasts of a 7,000 increase.
The seasonally adjusted jobless rate stood at 6.3% in June, in line with the previous month.
“There is little sign of change in the labour market,” labour office head Andrea Nahles said in a statement.
“Unemployment is falling only slightly, and employment subject to social security contributions is continuing its slight downward trend.”
Axel Springer completes Telegraph takeover
Newsflash: European media group Axel Springer has completed its takeover of the Telegraph in a £575m deal, after winning all the necessary regulatory approvals.
Axel Springer CEO Mathias Döpfner says:
”Today is a day we have worked towards for a long time, and one we will always remember.
Axel Springer was founded in 1946 under a British press license, and The Telegraph was our North Star. Axel Springer and The Telegraph share strong commitments to freedom, values, a tradition of embracing and pioneering technological change, and an entrepreneurial will to actively shape the future.
This creates a strong foundation for further accelerating our AI-powered digital transformation. Together we can lead the next generation of trusted media.“
Axel Springer agreed the deal in March, scuppering a rival deal from the owner of the Daily Mail.
Axel Springer also owns Bild, Business Insider, Morning Brew, Politico, and WELT.
A ‘decent’ start to the year, and good news on UK inflation too
The UK’s 0.6% growth in January-March was “a decent start to 2026”, reports Investec’s Philip Shaw.
However….
Attention will soon turn to the scale of any negative impact of the recent surge in energy prices. Indeed we envisage growth coming close to a halt in Q3, although the level of the saving ratio will give households in aggregate a cushion to absorb cost increases without an abrupt interruption in spending.
Thereafter the unwinding of the energy price spike should form a tailwind and help to support expenditure and economy activity more widely.
Happily for UK households, though, Investec have lowered their forecast for UK inflation this year
Shaw explains:
We have lowered our forecast of the peak in inflation over the remainder of the year from 4.0% to 3.1% though, thanks to the sharp decline in energy prices and to May’s CPI data, which showed evidence of considerable disinflationary pressures in the pipeline prior to the Iran war. We feel more confident now that the 2.0% target will be in sight by end-2027.
High inflation means UK living standards are only likely to rise slightly through 2026, after falling in January-March, predicts Rob Wood, chief UK economist at Pantheon.
Wood told clients:
The income side of the national accounts showed that real household disposable income dropped by 0.8% quarter-to-quarter in Q1, cutting a chunk from the 1.3% gain in Q4 2025, as higher inflation ate into real household earnings.
Sticky inflation over the coming year—despite the recent drop in energy prices—will mean that real household disposable income grows only slowly for the rest of the year.
Wood also predicts that households could keep running down their savings to support growth:
The household saving rate was estimated to have fallen to 8.9% in Q1, down from 9.6% in Q4 2025, as households smoothed through a fall in real incomes, keeping spending going.
The saving rate still remains well above its 2015-to-2019 average of 6.5%, and the latest money and credit data for May—released yesterday—suggest that households are willing to save less over the coming months in order to keep smoothing their spending through the energy price shock. So, we continue to think that consumers’ spending can help GDP growth hold up over H2.
The UK economy is still struggling to generate “consistent and sustainable growth,” warns Jonathan Raymond, investment manager at Quilter Cheviot, despite the 0.6% rise in GDP in the January-March quarter.
Raymond explains:
“GDP fell by 0.1% in April, suggesting activity has started to soften as we moved into the second quarter. That shift highlights how quickly conditions have changed and raises the prospect that the first quarter may prove to be a peak for growth rather than the start of a sustained recovery.
“The broader backdrop remains uncertain. While a ceasefire between the US and Iran has helped ease immediate pressure on energy markets, it remains a fragile agreement with key details still unresolved. That leaves the risk of renewed volatility in energy prices firmly in place, which continues to cloud the outlook for inflation and continues to negatively impact consumer and business confidence.
“At the same time, the UK is entering a period of heightened political uncertainty. The prospect of an Andy Burnham-led government has already prompted closer scrutiny from markets, particularly around fiscal policy and borrowing, and any change in direction risks feeding through into financing conditions for the wider economy.
“This leaves the Bank of England in a difficult position. Growth is showing early signs of slowing, but inflation risks remain sensitive to energy prices and policy uncertainty. Even a solid first quarter does little to shift the broader picture, with the UK economy still struggling to generate consistent and sustainable growth.”
Britain’s trade deficit was slightly larger than first estimated in January-March, today’s national accounts show.
Excluding non-monetary gold and other precious metals, the trade deficit was 1.0% of nominal GDP in Quarter 1 2026, up from a previous estimate of 0.9%.
UK energy price cap going up tomorrow
UK households will come under more financial pressure tomorrow, when Britain’s energy price cap rises.
The limit on how much providers can charge for electricity and gas will go up by 13% on 1 July, to the equivalent of £1,862 a year for a typical bill.
Adam Scorer, chief executive at National Energy Action, says this increase should be a ‘red energy warning’:
’Tomorrow’s price cap rise should be a red energy warning. Energy inefficient homes take lives in winter and will increasingly threaten the most vulnerable in summer; London Ambulance Service had its busiest day on record on Friday.
‘Fuel poverty means many cannot experience a comfortable and safe temperature at home, because the building fabric makes it impossible or the cost of doing so makes it prohibitive. This is a public health emergency for the most vulnerable and needs to be addressed as such.
‘Tomorrow’s cap rise is another blow for millions already struggling. The legacy of the energy crisis is millions of households locked into debt they cannot repay, and that is pushing up bills for everyone. If we fail to act, we risk seeing more households forced onto prepayment and effectively cut off from energy. That cannot be the answer to a problem caused by unaffordable bills.
‘We need urgent action to clear this debt and stop costs being baked into the system. The right response is to scale debt relief. As our new paper, Clearing the Decks, sets out, that means enabling and expanding Ofgem’s Debt Relief Scheme with additional funding so more of this debt can be cleared, reducing harm and lowering costs across bills.’
2025 growth revised down
Today’s data also shows that the UK economy grew less than previously thought in the first calendar year of the Labour government.
The ONS now estimates that UK GDP rose by 1.3% during 2025, down from its previous estimate of 1.4% growth.
As you can see on this chart, the ONS lowered its estimate for growth in the second half of 2025, while also nudging it up a little for the second quarter of last year.
Table: How UK topped G7 growth table in Q1
The UK’s growth of 0.6% in January-March outpaces the rest of the G7, just!
The US and Japan were close behind, with quarterly growth of 0.5%, while Italy and Germany both grew by 0.3%.
Canada stagnated, while France is on the brink of a technical recession after its GDP fell by 0.1% in Q1 2026.
Why real household disposable income per head fell
The fall in UK real household disposable income (RHDI) in the first quarter of 2026 came despite increase in income in these areas:
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compensation of employees, by £8.2bn
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net property income, by £2.1bn
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gross mixed income, by £1.5bn
But….this was offset by an increase in taxes on income and wealth, by £6.9bn, and a fall in net social contributions, by £5.1bn.
The Office for National Statistics says:
The impact of the reduction in the tax-free allowance for capital gains, and the resulting increase in Capital Gains Tax payments, contributed to the increase in taxes on income and wealth.
Introduction: UK living standards fall despite rise in growth
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK living standards fell in the first quarter of the year, even though the economy grew, highlighting the challenge facing Andy Burnham as he pledges to “lift the country’ back up”.
New data from the Office for National Statistics this morning shows that real household disposable income per head shrunk by 0.8% in the first quarter of 2026, showing that people were left with less money to spend after taxes.
The ONS reports that while pay and income from property rose in the quarter, this was more than wiped out by higher taxes on wealth and income, and a fall in ‘net social contributions’.
The households’ saving ratio – which estimates the percentage of disposable income Britons save rather than spend – fell by 0.7 percentage points to 8.9%, driven by a fall in the contribution of non-pension saving. That indicates people had less money to put aside, as rising prices pushed up the cost of living.
In better news, the ONS confirmed that the UK economy grew by 0.6% – that is the fastest growth recorded by any G7 country in January, something for Rachel Reeves to cling onto as Burnham weighs up who to appoint as chancellor should be succeed Sir Keir Starmer as PM soon (as appears likely).
But the fall in disposable income highlights that GDP growth alone is not enough to create a healthy economy that works for everyone.
Director of Economic Statistics Liz McKeown says:
“Our latest set of figures show no revision to economic growth in the first quarter of this year. However, growth for 2025 was revised down a little.
“Services were the main driver of growth in the latest quarter, with strength in computer programming, wholesale and advertising only partially offset by falls in rental companies and recruitment agencies. Production and construction also both grew overall, although construction only partly reversed its recent weakness.
“The household saving ratio continued to ease at the start of 2026 but remains above its pre-pandemic levels.”
The agenda
-
7am BST: ONS releases UK quarterly accounts for Q1 2026
-
7am BST: German retail sales for May
-
8.55am BST: German unemployment report for June
-
2pm BST: US house price index for April
