UK households are set to experience the largest fall in spending power in 70 years, as the rising cost of living continues to outpace wage growth. The Office for Budget Responsibility (OBR) has forecast that real household disposable income will drop by 6% over this year and next, marking the steepest two-year decline since records began in the 1950s.
The OBR chairman, Richard Hughes, warned that living standards will not return to pre-pandemic levels until 2027. He noted that households are likely to dip into savings to cope with the squeeze, which may support short-term growth. The forecasts came as Chancellor Jeremy Hunt presented the Budget, predicting the economy would shrink by 0.2% this year but avoid a recession.
Inflation, currently in double digits, is expected to fall to 2.9% by the end of the year, according to the OBR. However, high energy and food prices, exacerbated by the war in Ukraine and the pandemic, continue to strain household budgets. Adrian Hanrahan, managing director of Robinson Brothers, expressed disappointment that the Budget did not address immediate challenges such as high energy costs and labour shortages.
Labour leader Sir Keir Starmer criticised the government, accusing it of being 'out of touch' and putting the country on a 'path of managed decline'. The Institute for Fiscal Studies noted that the economic outlook had not changed significantly since autumn, with slightly faster short-term growth but slower medium-term expansion.
