Household disposable incomes to tumble by 2.2% in next 12 months
UK living standards are set to fall at the fastest pace on record this year as inflation surges and the economy grows much more slowly than forecast.
The government’s official forecaster now expects real household disposable income per person to tumble 2.2 per cent over the coming 12 months – the largest financial-year fall on record.
Growth forecasts for the UK economy were slashed in the Office for Budget Responsibility’s first official projections released since Russia invaded Ukraine.
Growth will be just 3.8 per cent in 2022, down from 6 per cent forecast in October last year, the Office for Budget Responsibility (OBR) estimated.
Giving his mini-budget on Wednesday, Rishi Sunak unveiled more gloomy figures for the UK economy, which has already had a faltering recovery from the pandemic.
“We should be prepared for the economy and public finances to worsen, potentially significantly,” the chancellor said.
In an indication that Vladimir Putin’s war in Ukraine will have long-lasting economic effects, the OBR downgraded its figures for growth in 2024 and 2025.
Gross domestic product (GDP) – a measure of total goods and services produced – is expected to grow 1.8 per cent next year, down from October’s forecast of 2.1 per cent. In 2023, growth is expected to hit 2.1 per cent, a slight improvement on the previous forecast of 1.8 per cent.
— Office for Budget Responsibility (@OBR_UK) March 23, 2022
“It is too early to know the full impact of the Ukraine war on the UK economy,” Mr Sunak told MPs.
The OBR also hiked its inflation forecast and cautioned that there was “unusually high uncertainty” around the economic outlook. The consumer prices index (CPI) is now predicted to reach 7.4 per cent for 2022.
It came as official figures showed that inflation had hit a 30-year high in February, with price hikes across food, fuel and clothing pushing up the cost of living.
The CPI surged to 6.2 per cent for the 12 months to February, the Office for National Statistics (ONS) reported.
Mr Sunak unveiled a package of measures aimed at cushioning people from the impact of falling living standards. He announced a 5p fuel duty cut and a rise in the National Insurance threshold by £3,000 to £12,570.
The chancellor pressed ahead with a previously announced 1.25 percentage point increase in National Insurance contributions but said raising the threshold meant that most people would pay less overall. This amounted to a £6bn “personal tax cut” for 30 million people, Mr Sunak said.