Britons ‘working harder for less’ as living standards see historic slowdown

Resolution Foundation analysis warns UK living standards for working-age families have slowed dramatically, with disposable income growth falling from 1.8% a year (1960s–mid-2000s) to 0.5% since the mid-2000s, and the poorest households seeing declines such that it would take 137 years for lower-income families to double living standards at current rates. In-work poverty has risen (55% of poor households now include a worker, up from 38% in the mid-90s), council tax is highlighted as regressive (very poorest pay four times the share of income versus the richest), and the report urges targeted cost-of-living measures; the Treasury cites recent policy moves (e.g., £150 off energy bills, rail fare and prescription freezes, minimum wage increases, lifting the two-child benefit cap affecting ~450,000 children). The data imply weaker consumer spending prospects and elevated political risk for the government, with implications for fiscal measures and sectors linked to housing and energy affordability.

Analysis

Market structure: Slowing real income growth (from ~1.8% pa historically to ~0.5% pa recently) shifts share to defensive, low-cost retail, utilities and discount leisure while hitting housebuilders, durable goods and consumer credit. Lower home‑ownership affordability and rising in‑work poverty (55% of poor households now work) point to weaker housing demand and downwards pricing power for cyclicals over 6–18 months.

Risk assessment: Tail risks include aggressive fiscal loosening (large targeted transfers) that could lift inflation and gilt yields, or conversely a deeper demand shock that forces additional subsidies and peso‑style fiscal strain; either can move gilts ±200–300bp over 12–36 months. Near term (days–weeks) data prints (monthly retail sales, CPI, claimant counts) are high‑probability catalysts; longer term (quarters) depends on wage growth and policy reforms (council tax/energy support).

Trade implications: Favor long staples/discount grocers and regulated utilities, short UK housebuilders and consumer subprime lenders. Use option protection: buy 3–6 month puts on cyclical shorts and 6–12 month covered-call income on defensive longs. Rotate 3–6% of UK equity sleeve into income names and shift duration in portfolio towards intermediate gilts if CPI prints <2.5% next three months.

Contrarian angles: Consensus underestimates fiscal policy response — targeted discounts may prop up real incomes enough to avoid deep housing collapse, making short housebuilders risky beyond 9–12 months. Also, persistent stagnation could make inflation tame, creating a multi‑quarter gilt rally that markets underprice today; consider asymmetric option structures to capture this possibility.

Key Decisions for Investors

• Establish a 2–3% NAV long position split 60/40 in Tesco (TSCO.L) and Sainsbury's (SBRY.L) over 6–12 months to capture trade‑down in food spend; buy 6‑month 5% OTM call spreads to cap capital and target +10–15% upside; stop‑loss -8%.
• Initiate a 1.5–2% NAV short exposure to UK housebuilders (Barratt BDEV.L and Taylor Wimpey TW.L, equal weight) with purchased 3–6 month puts (10–15% OTM) to limit tail risk; horizon 3–9 months, target -20–35% if UK mortgage approvals fall >10% MoM.
• Rotate 3–5% NAV from UK mid‑cap cyclicals into regulated utilities (SSE.L and National Grid NG.L combined 3% NAV) for 12–18 months to lock 4–6% yield and lower beta; trim if 10‑year gilt yield rises >100bp.
• Buy a small GBP put spread (size ~0.5% NAV exposure) vs USD with 3‑month tenor (sell 1% ITM, buy 3% OTM) to hedge FX downside should UK PMIs/CPI miss expectations or political risk spikes; exit on 2–4% move in GBP or at expiry.
• Trim 30–50% exposure to consumer finance names (e.g., Provident Financial PFG.L) immediately if 90‑day delinquency rates rise >25% YoY or unemployment >5.5% within next 6 months; redeploy proceeds into short housebuilder basket or gilts.