UK disposable incomes fall as inflation and tax changes bite

The UK economy expanded by 0.6% in the first quarter of 2026, a figure confirmed by the Office for National Statistics (ONS) that matched initial estimates. The services sector was identified as the primary driver of this growth. Despite the overall economic expansion, UK households experienced a significant decline in disposable incomes, which dropped by 0.8% during the same quarter. This reduction is attributed to the combined pressures of rising inflation and adjustments in capital gains tax. This marks the fourth decrease in disposable incomes over the last five quarters, indicating a persistent challenge for households.

Further complicating the economic picture, British shop price inflation remained unchanged in June, holding steady at the same rate as May. This stability is largely due to a slowdown in food price inflation. Specifically, fresh food costs saw a decrease, influenced by summer sales on items like strawberries and ice cream, even as energy prices continued to rise. In parallel, British businesses reported a dip in confidence regarding the overall economic outlook in June, as indicated by a Lloyds survey. While firms maintained optimism about their individual trading prospects, the manufacturing sector experienced a notable decline in confidence.

In contrast, Canada's economy demonstrated a strong rebound in April, posting a 0.5% month-on-month growth, according to Statistics Canada. This figure exceeded expectations and represents the largest monthly increase in nine months. This recovery followed a contraction of 0.1% in March and has helped to alleviate concerns about a potential economic slowdown driven by tariffs. Analysts in the UK predict that economic growth may stall later in the year, but anticipate that existing household savings could provide a buffer against further downturns.