Cost of living: Warning UK faces biggest income squeeze in nearly 50 years￼
War in Ukraine will push up energy prices and see UK families squeezed even further, a think tank has warned.
The Resolution Foundation forecasts that a typical household’s income will fall by about £1,000 this year once the effect of inflation is accounted for.
That would be the biggest real-terms fall in incomes since the mid-1970s, it added.
A government spokesperson said it recognised the pressures households are facing.
Many families were already expecting their monthly spend to go up when the energy price cap jumps in April, and National Insurance contributions rise.
But in a new report, the Resolution Foundation said the Ukraine conflict would push up living costs even further as the prices of fuel and other goods surged.
It expects inflation, which measures how the cost of living changes over time, to peak in April at 8.3%. That is much higher the Bank of England’s forecast of 7.25% back in February.
“The crisis in Ukraine has increased both the scale of price rises but also the degree of uncertainty about their levels and duration,” the Foundation’s report said.
“The UK’s post-Covid economic recovery is well under way, but a deep living standards downturn is just getting going,” it added, also warning that wages are not forecast to grow particularly fast either.
This spring was always going to be a crunch moment.
At the start of April, spikes in global oil and gas prices from last year start to feed through to our energy bills and the energy price cap jumps up. You should have had a message from your provider by now explaining what’s happening to your particular bill and warning about an increase to your direct debit.
That will be hard enough for many households, but we’re also now seeing record prices at petrol stations due to the war in Ukraine. The Resolution Foundation is also warning the conflict will bring more price rises, with inflation peaking at the same point as the price cap goes up.
The only saving grace is the time of year. At least if the weather improves (and that’s a big “if”), we can start using less energy and leaving the car at home becomes easier for many. That could help people to divert cash to cover the rising prices in shops, which we will have to pay whatever the season.
Its principal economist, Adam Cortlett, said soaring bills would hit low and middle-income families the hardest.
He also suggested poorer households would face a “living standards rollercoaster” because of the way that benefit payments are set months in advance.
For example, most working age benefits and the state pension are due to rise by 3.1% in April – a time when the increase in the cost of living could be as high as 8%. But high inflation in 2022 should lead to bigger payments next year.
The think tank called on Chancellor Rishi Sunak to announce fresh support for struggling families at his Spring Statement.
Torsten Bell, chief executive of the Resolution Foundation, said: “While the economic fallout from the war will feel trivial compared to the suffering experienced by millions of Ukrainians, it will still have a significant impact in Britain.”
He suggested that surging gas and oil prices would worsen the “cost of living crisis”, causing a “painful squeeze on family incomes”.
Mr Bell told the BBC’s Today programme the country was heading into a “living standards recession”.
“We could see income falls of 4% in the financial year that’s about to kick off, we never see that outside of significant recessions,” he said.
“Given it will take us quite a few years to claw our way back from that, it may well feel like our living standards during the pandemic were as good as it got during the first half of the 2020s.”
A government spokesperson said: “We recognise the pressures people are facing with the cost of living, which is why we’re providing support worth around £20bn this financial year and next to help.”
They said this includes freezing fuel duties to keep costs down, as well as launching energy bills rebate programme.
“We have also boosted the minimum wage by more than £1,000 a year for full-time workers and our £500m Household Support Fund is helping the most vulnerable with essential costs,” they added.