FAMILIES face being seven per cent poorer within two years as a double whammy of soaring bills and a fall in income hits.
The 7.1 per cent drop in real terms income is the largest since records began in 1956 — and reverses almost a decade of living standards growth.
The Office for Budget Responsibility said the slump would “wipe out the last eight years of improvement” in household finances.
And it said the situation was unlikely to recover to pre-pandemic levels until 2028.
It comes as families face a barrage of surging costs including rising mortgage, energy and food bills, while house prices are falling and unemployment is edging up.
Even with the Chancellor’s Spring energy price cap limiting bills to £3,000 it means households are still paying 77 per cent more than they were a year ago.
Paul Johnson, director of think tank the Institute for Fiscal Studies, said: “Surging global energy prices have made the UK a poorer country.
“The result is an OBR forecast that the next two years will see the biggest fall in household incomes in generations.”
The OBR reckons inflation will peak at its current 41-year high of 11 per cent and fall to 7.4 per cent in 2023 partly because of the government’s energy support.
Chancellor Jeremy Hunt said that inflation was more insidious to households than tax rises because it eroded their pay.
The squeeze on cash means the OBR reckons household savings ratios will slump from 24 per cent in lockdowns — when people built up buffers from not going abroad or commuting — to zero next year, with people having to raid their accounts to afford monthly payments.
The gloomy prediction came as the Chancellor and the OBR confirmed the country was already in recession.
However, the OBR thinks the slump will only last a year compared with the Bank of England’s prediction of a two-year downturn.
The OBR reckons the economy will shrink by two per cent, a relatively shallow recession compared with the financial crash in 2008.
But it could still cost the country as many as 500,000 jobs as companies start cutting back in the face of rising costs.
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