Households in Britain will suffer a hit to their finances of up to £4,000 this year, stated a recent report, adding to pressure on prime minister Rishi Sunak as the government prepares to scale back its support for energy bills this spring.
According to a report by National Institute for Economic and Social Research (NIESR), low and middle-income households were facing the biggest financial hit from the cost of living crisis.
In its latest quarterly health check on the economy, it said Britain was likely to sidestep a protracted recession this year, but that growth would remain close to zero as the impact of high inflation and rising borrowing costs weigh on the economy.
“With the cost of living crisis having a lasting effect on households, for at least 7 million, it will certainly feel like a recession,” the report said.
Highlighting a return of a “squeezed middle” as high inflation erodes consumer spending power, it said an average middle-income household would face a hit to their personal disposable income of 13 per cent, reaching up to £4,000 in the next financial year.
Jagjit Chadha, the director of NIESR, said the changes were required after a series of economic shocks since the 2008 financial crisis – including the fallout from the Brexit referendum, Covid pandemic, and energy crisis – had made households poorer and stoked inequality.
“What we’ve seen is the shocks that have come along have progressively made us poorer per person. We can talk about the average growth rate of the economy, but that masks household and regional inequalities.
“We can point to areas where income per head has grown, but on average it’s low. And that low average also means many households have had deteriorating standards of living over time. That’s the key frustration the UK economy is facing.”