Low and middle income families set for ‘living standards rollercoaster’ with inflation set to hit 30-year high
An economist from the Resolution Foundation says Britain has ‘stepped out of a pandemic and into a cost of living crisis’
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Economists are warning of a ‘living standards rollercoaster’ for low and middle income families, as inflation is likely to rise to 8% in the coming months.
Inflation could reach historic highs driven by Ukraine conflict
Millions of people are set to experience an ever more drastic decline in their living standards than originally thought as a result of the war in Ukraine, the Resolution Foundation think tank has warned.
Their projection suggests that inflation could reach 8.4%, which would be the highest rate of inflation in more than 30 years.
The Resolution Foundation is warning that, as a result, real typical household incomes could fall by 4 % in 2022-23.
This would equate to a drop in income of £1,000 per household - the most severe annual income fall since the mid-1970s.
And while the think tank has welcomed the Government’s energy rebates package, it notes that though it will lessen the impact in the short term the scheme will stifle growth the following year as the loans are claimed back.
Adam Corlett, Principal Economist at the Resolution Foundation, said: “Britain has stepped out of a global pandemic, and straight into a cost of living crisis.
“The tragic conflict in Ukraine is likely to further drive up the price of energy and other goods, and worsen the squeeze on incomes that families across Britain are facing. Inflation may even exceed the peak seen during the early 1990s, and household incomes are set for falls not seen outside of recessions.”
Think tank calls for rethink on benefits upratings
Despite inflation being set to reach as high as 8%, working-age benefits and the state pension are set to be uprated by just 3.1% next month.
This real-terms cut to incomes will come into effect as millions of people see their energy bills increase significantly.
Rising costs are already being felt particularly keenly on petrol forecourts, in supermarkets and as households pay their energy bills.
The crisis has prompted industrial action across many industries, as workers call for pay increases which reflect the spiralling cost of living.
The Resolution Foundation is calling on the Chancellor to change the benefits upratings in the coming Spring Statement.
Corlett said: “For millions of low-and-middle-income families, this inflation-driven squeeze will be made worse by a living standards rollercoaster.
“The immediate priority should be for the Chancellor to revisit benefits uprating in his upcoming Spring Statement.
He added: “In the longer term, turning around the UK’s relative decline compared to other advanced economies, and reversing our terrible recent record on productivity, is the only route to meeting the living standards challenges Britain faces.”