Living Standard in the UK falls to its lowest

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the UK chancellor


Image Source: Bloomberg

As the cost of living goes up, people’s wages are going farther than they used to. This is the most significant drop in living standards the UK has ever seen.

Once rising prices were taken into account, the government’s forecaster said that household incomes would drop by 7% over the next few years.

It also thinks there will be more than 500,000 more people without jobs.

The chancellor had just said that the UK was already in a recession and would worsen next year.

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

Paul Johnson, who runs a think tank called the Institute for Fiscal Studies, said, “Rising energy prices around the world have made the UK poorer.

Due to the Ukraine conflict and the pandemic, energy and food bills have gone through the roof. So naturally, this is putting a strain on household budgets.

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

The forecaster 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 the government’s energy price guarantee scheme, which keeps bills from going up too much.

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

It thinks that, after accounting for inflation, household incomes will return to where they were in 2013. Of course, it will take six years for them to return to where they were in 2013. But, they will still be “over 1% below pre-pandemic levels” by 2028.

A perfect storm

This is likely to be a short, mild recession for the UK economy. But it will wipe out gains in people’s living standards and send them back to 2014.

Several things cause it, but a big one is a rise in energy and food prices. Unfortunately, the government’s help package has only softened some of the blow caused by the rise in energy prices.

The Bank of England’s response to rising inflation is to raise interest rates, which is meant to reduce price pressures by making money tighter. As a result, official predictions say that house prices will drop by more than 5% in 2024.

There are also tax hikes that are aimed at the rich and will slowly eat away at their wealth. As a result, the tax man is about to take the most significant chunk 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. The Office for Budget Responsibility says that this will lead to the loss of over 500,000 jobs.

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

Warning of a recession for the UK

The OBR says that the UK has trouble with high inflation and rising interest rates. As a result, the Bank of England has raised interest rates to 3% to fight inflation.

The OBR thinks this will push 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 believes the unemployment rate will go up from 3.6%,. Close to a record low, to 4.9% in 2024 before going down again.

Read Also: Food price inflation reaches 45-year high 

After the controversy over the mini-budget in September. 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. Butthe government’s borrowing costs mainly stayed the same.