British families are facing a lost decade of pay growth as inflation is set to erode years of improving living standards, according to a media report.
Rising prices over the next two years will completely wipe out salary increases built up over the last eight, according to the Government’s Budget watchdog, Daily Mail reported.
The 7 per cent fall in living standards will be the biggest since records began in the 1950s, hitting spending and triggering a recession which began in the third quarter of this year.
The slump will last for just over a year, the Office for Budget Responsibility (OBR) predicted, wiping 2 per cent off the size of the economy.
And as businesses feel the squeeze, they will begin to axe jobs. Unemployment is expected to rise from its current level of 3.6 per cent to 4.9 per cent in the third quarter of 2024 – putting 505,000 people out of work, Daily Mail reported.
The gloomy predictions came as Jeremy Hunt unveiled a £55billion plan to hike taxes and cut spending, in an effort to get the public finances back on a more sustainable footing.
Economist Thomas Pugh, of accountancy firm RSM, said: “The OBR’s forecasts paint a dire picture of the economic outlook over the next two years, with a year-long recession and a record-breaking fall in households’ real incomes.”
Paul Johnson, director of think-tank the Institute for Fiscal Studies, said: “The next two years look grim in terms of living standards.”
It came as the Chancellor announced a swathe of stealth taxes in an attempt to patch the gaping hole in the public purse. Britain’s tax burden is now set to rise to its highest sustained level since the Second World War.
Hunt acknowledged that “in the face of unprecedented global headwinds, families, pensioners, businesses, teachers, nurses and many others are worried about the future”.
But he said his efforts to boost the Treasury coffers would lead “to a shallower downturn”, and were necessary to “give the world confidence in our ability to pay our debts”.
Households’ real disposable income – the amount of cash they have to spend after tax, taking inflation into account – will tumble by 4.3 per cent in the 2022/23 financial year, the OBR predicted, Daily Mail reported.