UK living standards face biggest decline since 1950s

As the cost of living erodes incomes in the UK, the country faces the biggest decline in living standards ever recorded. The government’s official estimates are that, taking into account the rise in prices, there will be a 7 percent reduction in revenues over the next few years.

While the cost of living in the UK has eroded incomes, living standards in the country are facing the biggest setback after record keeping began.

The government’s official estimates are that, taking into account the rise in prices, there will be a 7 percent reduction in revenues over the next few years.

It will also take another six years for living standards to return to last year’s levels, according to estimates from the Office of Budget Responsibility (OBR).

In the UK, Finance Minister Jeremy Hunt envisions a £55bn tax increase and spending cuts in the fiscal plan he announced today.

Energy and food prices, which have risen sharply due to the war in Ukraine and the coronavirus pandemic, are already placing a huge burden on household budgets.

OBR warns that inflation, which has reached the highest levels in the last 41 years, has also slowed the economy.

The OBR predicts inflation will peak at 11 percent in the last three months of this year, largely thanks to the government’s energy price guarantee, which has curbed energy bills.

However, the organization said rising prices will still continue to erode real earnings, and “the biggest decline in living standards since 1956, when records began to be kept, will be seen”.

The agency predicts that household incomes will improve, but will still be worse than pre-pandemic levels by 2028.

Rising interest rates and falling home prices will “put a strain on consumption and investment, and drag the economy into a recession that will last a little more than a year,” the OBR said in a statement.

While the economy is expected to grow by 4.2 percent in 2022, but contract by 1.4 percent next year, it is expected to grow by 1.3 percent, 2.6 percent and 2.7 percent in the next three years.

The unemployment rate is also expected to rise to 4.9 percent from the current level of 3.6 percent and fall again in 2024.

While the cost of living in the UK has eroded incomes, living standards in the country are facing the biggest setback after record keeping began.

The government’s official estimates are that, taking into account the rise in prices, there will be a 7 percent reduction in revenues over the next few years.

It will also take another six years for living standards to return to last year’s levels, according to estimates from the Office of Budget Responsibility (OBR).

In the UK, Finance Minister Jeremy Hunt envisions a £55bn tax increase and spending cuts in the fiscal plan he announced today.

Energy and food prices, which have risen sharply due to the war in Ukraine and the coronavirus pandemic, are already placing a huge burden on household budgets.

OBR warns that inflation, which has reached the highest levels in the last 41 years, has also slowed the economy.

The OBR predicts inflation will peak at 11 percent in the last three months of this year, largely thanks to the government’s energy price guarantee, which has curbed energy bills.

However, the organization said rising prices will still continue to erode real earnings, and “the biggest decline in living standards since 1956, when records began to be kept, will be seen”.

The agency predicts that household incomes will improve, but will still be worse than pre-pandemic levels by 2028.

Rising interest rates and falling home prices will “put a strain on consumption and investment, and drag the economy into a recession that will last a little more than a year,” the OBR said in a statement.

While the economy is expected to grow by 4.2 percent in 2022, but contract by 1.4 percent next year, it is expected to grow by 1.3 percent, 2.6 percent and 2.7 percent in the next three years.

The unemployment rate is also expected to rise to 4.9 percent from the current level of 3.6 percent and fall again in 2024.

A recession is defined as the contraction of the economy for two consecutive three-month periods.

In times of economic recession, companies often make less money, wages fall and unemployment rises. This means that the government can collect less taxes to use in public services.

Finance Minister Hunt hopes that the $55 billion tax increase and cuts in the newly announced budget, following the debates created by the mini-budget announced in September, will increase its credibility in the eyes of international investors.

Hunt’s predecessor, Kwasi Kwarteng, had promised massive tax cuts without explaining how it would be funded, and this frightened investors. The value of the sterling subsequently fell to record levels and the government’s borrowing costs soared.

Part of the problem was that Kwarteng refused to publish an independent analysis of the OBR, as he normally does.

Shelving most of his predecessor’s plans, Hunt said the cost of borrowing had fallen and the sterling had strengthened.

Source: Daniel Thomas / BBC Economics Correspondent