The UK is facing its biggest drop in living standards since records began in 1956, as soaring energy prices push inflation to a 40-year high. The Office for Budget Responsibility (OBR) forecasts that disposable household incomes, adjusted for inflation, will fall by 2.2% this year, with living standards not recovering to pre-pandemic levels until 2024-25.
Rising prices and tax hikes are squeezing households, with energy bills set to rise by 54% in April and a further 40% in October, taking the typical annual bill to £2,801. Petrol prices have already increased by 20% since the OBR's previous forecast, and the government's fuel duty cut of 5p per litre offers limited relief.
Chancellor Rishi Sunak announced measures including raising the National Insurance threshold from £9,600 to £12,570 and a £9bn energy bill rebate scheme. However, the OBR noted that these policies offset only a third of the fall in living standards expected over the next 12 months.
The OBR slashed its growth forecast for 2022 from 6% to 3.8%, citing the impact of Russia's invasion of Ukraine on energy prices and supply chains. Growth is expected to slow further to 1.8% in 2023 before recovering to 2.1% in 2024.
Households are already feeling the pinch. Stevie Hall in Halifax told the BBC she has resorted to batch cooking and limiting driving to essentials, but rising food, fuel, and energy bills have pushed her into debt. 'We're just trying to get by,' she said.
