UK faces worst drop in living standards since 1970s, economists warn Business News

The economic fallout from the conflict in Ukraine will help trigger the biggest drop in British living standards since the mid-1970s, according to the Resolution Foundation, a leading think tank.

Incomes are set to fall 4% in the coming financial year – equating to an average of £1,000 per household – as the war in Ukraine adds to the existing cost of living crisis in the UK .

Inflation, the measure of price growth in the economy, could top 8.4% this spring, marking the highest level since 1982, according to analysis by the Resolution Foundation.

“Britain is out of a global pandemic and straight into a cost of living crisis,” said Adam Corlett, the think tank’s senior economist.

“The tragic conflict in Ukraine is likely to drive up the price of energy and other goods even further, and add to the pressure on incomes facing families across Britain. Inflation may even exceed the peak seen in the early 1990s, and household incomes are set for declines not seen outside of recessions,” he added.

Russia’s violent invasion of the Eastern European nation has added pressure to key commodity markets. Crude oil hit its highest level in 14 years on Monday and natural gas prices also soared. Ukraine’s sizable wheat and maize crops are also expected to be disrupted, while the sanctions-hit economies of Russia and Belarus are crucial exporters of fertilizer inputs.

This infographic from Statista shows the countries that import the most Russian oil

(Statista/The Independent)

The warning of severe pressure on household finances is the subject of a separate forecast, from consultancy Pantheon Macroeconomics, which has suggested twin inflation peaks of around 8% in April and October this year , in line with regulator Ofgem’s energy price cap increases.

“Most people haven’t experienced inflation like this in their working lives,” said Rachel Reeves, Labor MP and shadow chancellor. The Independent.

Ms Reeves says the Chancellor’s planned National Insurance hike this spring is “the wrong tax at the wrong time”.

“I didn’t think it was a good idea when the Chancellor announced it. It’s an even worse idea now, because it only adds to the huge stress of the cost of living crisis and the cost of business crisis as well.

Chancellor Rishi Sunak argued that having the tax increase, which will eventually be split into a health and social care tax, is essential to help meet the cost of the NHS backlog and the social care needs of aging in the UK. population.

Delivering the lecture But last month, Mr Sunak said it was ‘difficult to cut taxes at a time of increasing demands on the state’ and that lasting tax cuts had always been given by governments conservatives once “once the deficit was under control”.

The tax hike will hit consumers and businesses alongside a sharp rise in energy costs after Ofgem announced it would raise the price cap for a typical household by £693 from April .

The government has sought to offset some of this increase with a £350 energy rebate package.

However, with energy costs soaring amid questions about an oil and natural gas embargo on Russia, economists also expect the price cap to rise sharply from October.

However, working-age benefits and the state pension will not keep pace with the rising cost of living, the Resolution Foundation said. These benefits will increase by 3.1% this spring, taking a snapshot measure of inflation compared to September of last year.

This will represent a reduction in real terms of £10 billion in the value of benefits, the think tank said. Although this mismatch will eventually correct itself, the interim difficulties for consumers could be considerable, economists have warned.

“The immediate priority should be for the Chancellor to review the benefit increase in his next spring statement,” Mr Corlett said. He added that in the longer term it was essential for the UK to reverse its “terrible recent productivity record” in order to improve living standards.

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This notice was published: 2022-03-08 00:02:09

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