Real household disposable incomes are set to fall by 10% over 2022-2023, according to a report by the Resolution Foundation.
The economic crisis marks the deepest squeeze to living standards in a century, with the level of UK people in poverty on track to rise by three million as real term income declines by £3,000 per average household.
Relative child poverty is anticipated to reach its highest level of 33% in 2026-2027 since the peaks of the 1990s.
The report noted the Bank of England’s worrying projection of 13% inflation by October, however it also pointed out Citibank’s blood-chilling 18% estimation, and said the living standards decline will extend beyond winter 2022 into 2024.
Meanwhile, real earnings are expected to continue falling until at least mid-2023, extinguishing all real pay growth since 2003.
Resolution Foundation attributed the dramatic fall to 15 years of economic stagnation driven by historically weak productivity, alongside rising inflation.
The organisation added the lack of projected rapid recovery period would leave average real incomes 7% lower at the close of the current Parliament than they were at the start, representing the first time on record the UK became significantly poorer across a parliamentary term.
Significant support ‘all but inevitable’
The Foundation concluded significant support from the incoming Prime Minister was now “all but inevitable.”
The writers said support in the form of a social tariff, a universal bill reduction or price tag would cost billions of pounds, but was essential to reduce the burden on poorer households over the next six months.
Furthermore, researchers called on the government to keep the previous Chancellor’s commitment to raise benefits in 2023 in line with inflation.
They said a higher productivity-driven 1% increase to annual real pay growth over the next half-decade would boost average household income by 3% by 2026-2027, and poorer households’ income by 1%.
However, getting rid of the National Insurance rise in October would only serve to raise median incomes by 1% over the same time period.
“Britain is already experiencing the biggest fall in real pay since 1977, and a tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying,” said Resolution Foundation researcher Lalitha Try.
“No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.”
“The new Prime Minister also needs to improve Britain’s longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth.”