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The UK sees biggest fall in living standards

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Image Source: Bloomberg

People’s wages are going further than they used to because the cost of living is increasing. The UK has never seen a more considerable drop in living standards than this.

When rising prices were factored in, the government’s forecaster said that household incomes would drop by 7% over the next few years.

It also says that more than 500,000 more people will be unemployed.

The UK is already in a recession, and the chancellor said it would get worse next year.

But Jeremy Hunt said in his Autumn Statement that the £55 billion in tax increases and spending cuts he proposed would lead to a “shallower downturn” with fewer jobs lost.

Paul Johnson, who runs a think tank called the Institute for Fiscal Studies, said, “The UK is poorer because energy prices are rising worldwide.

Energy and food bills have gone through the roof because of the war in Ukraine and the pandemic. So, it makes sense that this puts a strain on family budgets.

The OBR says that the rate of price increases, or inflation, is at its highest level in 41 years, which hurts the UK economy.

The expert said that price increases would likely reach their highest point of 11% in the last three months of this year. This is primarily because of a government-run program to keep energy costs from increasing too much.

But it said that inflation would still “eat away at real wages and lower living standards” by the most since records began in 1956.

After considering inflation, it thinks that household incomes will return to where they were in 2013. It will take them six years to return to where they were in 2013, but by 2028, they will still be “more than 1 percent below pre-pandemic levels.”

A perfect storm

This recession is likely short and mild, but it will wipe out gains in people’s living standards and put them back to where they were in 2014.

There are many reasons for this, but a big one is that energy and food prices are rising. Unfortunately, the government’s help package has yet to do much to stop energy prices from going up.

When inflation goes up, the Bank of England raises interest rates. This is meant to ease price pressures by making money less available. Official predictions say that this will cause house prices to fall by more than 5% in 2024.

There are also tax increases that will slowly take away the wealth of the rich. So, the tax collector is about to get the biggest share of the country’s income since World War II.

Employers with a hard time are also giving pay raises that don’t keep up with the cost of living. As a result, the Office for Budget Responsibility says that over 500,000 jobs will be lost.

It’s a perfect storm, but by 2024, when the next presidential election is, people may want to know more about it.

Warning of a recession

The OBR says that high inflation and rising interest rates are problems for the UK. So, to fight inflation, the Bank of England has raised interest rates to 3%.

The OBR thinks this will put the economy into a recession that will last “just over a year.” Because people will spend less, and businesses will stop investing.

It thinks the UK economy will shrink by 1.4% in 2023 and slowly start to grow again.

The forecaster thinks the unemployment rate will go up from 3.6%. This is close to a record low, to 4.9% in 2024 before going down again.

Read Also: Milk and cheese drive food price inflation 

After the mini-budget in September caused a lot of trouble, Mr. Hunt hopes his Autumn Statement will help restore the UK’s economic credibility.

After Mr. Hunt’s speech on Thursday, the pound fell slightly against the US dollar. Bthe government’s borrowing costs mostly stayed the same.

Opinions expressed by Networth contributors are their own.

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