A think tank warns that families face ‘groundhog years’ as living standards further squeeze in 2023.
The Resolution Foundation’s new year outlook may give economic policymakers some reassurance next year, although there are signs that inflation will ease and interest rates will peak lower than feared. , households face pressure in 2022 as the cost of living crisis deepens.
The Foundation has described 2022 as horrific, with real household disposable income falling by 3.3%, or £800 per household, over the course of the year, the largest annual decline in a century.
Inflation may have already peaked at 11.1% in October, and wholesale energy prices have fallen significantly, the foundation said.
It is said that there are also reports from companies that the difficulty of hiring is easing.
However, in 2023, household living standards are projected to decline further, with incomes expected to decline by 3.8%.
This came despite benefits and national living wages set to welcome increases of 10.1% and 9.7%, respectively, in April, it said.
Wages will continue to fall in real terms through late 2023 and are unlikely to return to current levels until late 2024, the think tank said. low to medium income.
Household spending on energy bills is expected to hit a record high as retail prices rise further and government support dwindles. Typical home energy bills will rise from £1,550 in 2022 and £1,170 in 2019 to £2,450 in 2023, the foundation said.
While support for the energy bill will be curtailed, the report noted that the tax increase will be widened, confirming that the personal tax bill for a typical middle-income household will rise by about £1,000 from next April.
A sharp rise in interest rates in 2022 will also lead to higher mortgage costs in 2023, with about 2 million households moving to new fixed-rate deals.
Results from a new YouGov survey of 10,470 adults commissioned by the Resolution Foundation show that people are more than four times more likely to think their financial situation has gotten worse in the past year than they have gotten better. It has been.
One in eight (12%) said their financial situation had improved, while more than half (57%) said it had deteriorated.
Torsten Bell, CEO of the Resolution Foundation, said:
“Although we should see double-digit inflation in 2023, this is likely to be the year of the groundhog for many families whose incomes appear to fall as much as in 2022.
“Many families will benefit from an increase of around 10% next April in both benefits and the national living wage.
“But this is due to a shrinking payment packet, a record £900 rise in energy bills, a £1,000 rise in typical household taxes and a four-digit increase in mortgage bills for millions. will be overwhelmed by
“In terms of family living standards, things will get much worse in 2023 before things start to get better.”
A Treasury spokesperson said: .
“We also have plans to help ease the financial pressures facing households and help cut inflation by more than half next year, and by raising income tax and income tax exemption benefits, we have already helped millions of people. completely tax-free, and national health insurance has outpaced inflation since 2010.
“This means that in addition to significant cost of living support, everyone will benefit from reduced energy bills this winter, with over 8 million vulnerable households already receiving £1,200 cash payments directly to their bank accounts. 900 next year for those on means-tested benefits.”