Cost-of-living crisis to leave families £2,100 worse off
Typical household disposable incomes for working-age families are on track to fall by 3% this year, and by 4% next year, with the two-year cost-of-living squeeze set to leave families £2,100 worse off, research from the Resolution Foundation has revealed.
The Foundation’s annual Living Standards Outlook 2023 surveyed 10,470 adults to assess how they are coping with the crisis this winter and looks ahead to how the scale and nature of the crisis will evolve in years to come.
Falling inflation will be no escape
Despite noting that inflation should fall rapidly this year, the think tank highlighted other headwinds that will offset ‘this welcome trend’. These include higher energy bills, rising personal taxes and increased mortgage costs for three million households.
With the crisis only at its halfway stage, according to the Foundation, the report warns that millions of families are already struggling to cope. Nearly a quarter (23%) of adults said they couldn’t afford to replace or repair major electrical goods, while 11% said they were hungry but didn’t eat because of a lack of money in the past month.
Lalitha Try, researcher at the Resolution Foundation, said: “Britain is only at the mid-point of a two-year income squeeze, which is set to leave typical families £2,100 worse off. The crisis is already taking its toll on families, with over six million adults reporting they are going hungry as a result.”
Poorest hit hardest
And it is low earners who are being hardest hit. Among people in the poorest fifth of working families, 32% said they are not confident about their finances as a whole over the next three months (compared to 19% overall), while 34% said their health has been affected by the rising cost of living (compared to 21%).
With that issue of health in mind, Dr Jennifer Dixon, chief executive of the Health Foundation, urged the Government to act.
She said: “Action to tackle the cost of living must recognise both immediate and longer-term health risks created by growing financial insecurity and debt.
“The Government must act now and craft an intelligent strategy targeting those at greatest risk to avoid hampering the nation’s prosperity in years to come.”
A silver lining?
On a slightly more optimistic note, the Foundation noted that while the outlook for living standards is bleak, it is also far from certain. For example, further falls in wholesale gas prices could accelerate the fall in inflation, easing the cost-of-living crisis for all households.
It added that a productivity-driven one percentage point annual increase in forecast wage growth would also accelerate the UK’s post-crisis recovery and bring forward a return to pre-pandemic disposable income levels to 2025/26.
The Resolution Foundation report follows research released earlier today from Hargreaves Lansdown in partnership with Oxford Economics, which noted that millions of people are “running on empty” and there are “still miles to go”, with many set to endure “the pain of rising prices throughout 2023”.