Next two years to see biggest drop in household income

UK is facing biggest drop in living standards on record as the surging cost of living eats into people’s wages and next two years will see the biggest fall in household incomes in generations, stated recent reports. 

There will be the biggest fall in living standards since records began, with inflation “tipping the economy into a recession lasting just over a year”, the Office for Budget Responsibility said, as it released updated forecasts to accompany chancellor Jeremy Hunt’s autumn statement. 

According to a recent government’s forecaster, after taking rising prices into account, household incomes would dive by 7 per cent in the next few years. It also expects the number of people who are unemployed to rise by more than 500,000. 

The drop in household spending power will be so acute it will wipe out the past eight years of growth, as wage rises fail to keep pace with inflation and interest rates rise. It will effectively turn the clock back to 2013, the OBR said, adding that it will then take six years for them to recover, although they will still be “over 1 per cent below pre-pandemic levels” by 2028. 

Paul Johnson, director of the Institute for Fiscal Studies think tank, said, “Surging global energy prices have made the UK a poorer country. The result is an OBR (Office for Budget Responsibility) forecast that the next two years will see the biggest fall in household incomes in generations.”  

Inflation – the rate at which prices rise – is at a 41-year high, which the OBR says is dragging on the economy. 

The forecaster said price rises were likely to peak at 11 per cent in the final three months of this year, thanks largely to the government’s energy price guarantee scheme which limits bills. 

However, it said inflation would still “erode real wages and reduce living standards” this year by the biggest margin seen since 1956, when records began. 

OBR expects the UK economy to shrink by 1.4 per cent in 2023 before growth gradually picks up again.