UK households are facing the biggest income squeeze in half a century, a new report published by the Resolution Foundation has warned.

The think tank said the conflict in Ukraine is forecast to further push up energy prices and wider inflation to over 8% this spring.

This could cause average household incomes in the UK to fall by 4% in the 2022/23 financial year, a fall of £1,000 per household, which would be the sharpest fall since the mid-1970s.

Resolution Foundation’s report suggested that inflation could peak at 8.3% this spring, or even exceed the 8.4% rate in April 1991 – which is the highest seen since 1982. It also warns that inflation across the whole 2022/23 financial year could be 7.6% – which would be significantly above the 6.2% forecast by the Bank of England last month.

The report states that without a “considerable improvement” in the outlook for productivity and wages, the average UK household income in 2025/26 is set to be lower than in 2021/22.

Furthermore, most working age benefits and the state pension are due to rise by 3.1% in April, at a time when inflation could be over 8%. Over the course of the year, the report highlights that this will mean a real-terms cut in the value of benefits of over £10bn – more than the amount the government spent on pandemic-related temporary benefit increases in 2020/21 – which will reduce the real value of basic unemployment support to its lowest level since the early 1980s.

Principal economist at the Resolution Foundation, Adam Corlett, said that the UK 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.” Corlett commented. “Inflation may even exceed the peak seen during the early 1990s, and household incomes are set for falls not seen outside of recessions.

“For millions of low and middle-income families, this inflation-driven squeeze will be made worse by a living standards rollercoaster. Working-age benefits and the state pension are due to be uprated by just 3.1% next month, at a time when inflation could be as high as 8%.

“The immediate priority should be for the Chancellor to revisit benefits uprating in his upcoming spring statement. 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.”

Share Story: