BACKGROUND: The prevalence of childhood obesity has been increasing but the causes are not fully understood. Recent public health interventions and guidance aiming to reduce childhood obesity have focused on the whole family, as opposed to just the child but there remains a lack of empirical evidence examining this relationship. METHODS: Using data from the longitudinal Millennium Cohort Study (MCS), we investigate the dynamic relationship between underlying family lifestyle and childhood obesity during early childhood. The MCS interviewed parents shortly after the birth of their child and follow up interviews were carried out when the child was 3, 5 and 7 years. We use a dynamic latent factor model, an approach that allows us to identify family lifestyle, its evolution over time (in this case between birth and 7 years) and its influence on childhood obesity and other observable outcomes. RESULTS: We find that family lifestyle is persistent, 87.43% of families which were above the 95th percentile on the lifestyle distribution, remained above the 95th percentile when the child was 7 years old. Family lifestyle has a significant influence on all outcomes in the study, including diet, exercise and parental weight status; family lifestyle accounts for 11.3% of the variation in child weight by age 7 years. CONCLUSION: The analysis suggests that interventions should therefore be prolonged and persuasive and target the underlying lifestyle of a family as early as possible during childhood in order to have the greatest cumulative influence. Our results suggest that children from advantaged backgrounds are more likely to be exposed to healthier lifestyles and that this leads to inequalities in the prevalence of obesity. To reduce inequalities in childhood obesity, policy makers should target disadvantaged families and design interventions specifically for these families.