UK workers’ living standards will flatline next year, leaving them on track to be 4% worse off heading into the next election than they were in 2019, according to a leading thinktank.
The Resolution Foundation, which focuses its research on low- to middle-income households, said in a report that “never in living memory have families got so much poorer over the course of a parliament”.
Higher mortgage rates, steep tax rises and a stagnant economy meant UK workers were on track before an expected election in 2024 to suffer the worst fall in incomes over a five-year period since the 1950s, it said.
Adam Corlett, the organisation’s principal economist, said stable incomes next year will be a relief for many households, but “the bad news is that the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households”.
In a separate study, economic stagnation next year will be compounded by slowing exports to Europe and the rest of the world following a decline in global trade and unique barriers caused by Brexit red tape.
The British Chambers of Commerce (BCC) said in its quarterly economic forecast that the UK had avoided a recession this year but with “a number of economic indicators now flashing red” the next two years would bring “consistently low growth”.
Analysts at the Resolution Foundation said the incomes of typical working-age households were on course to be 4% lower in 2024-25 than they were in 2019-20 – considerably worse than the 1% income fall recorded between 2005-06 and 2010-11.
The report looked at comparable UK data going back to the middle of the 20th century.
While some important elements of economic data was improving, with inflation having fallen from a peak of 11.1% last year to 6.8% in July and the Bank of England likely to halt its interest rate raising cycle within a few months, it said higher mortgage and rental costs, a rise in tax bills and restricted government finances would limit the recovery.
Inflation-adjusted gross pay is expected to rise by 2.9% on average over the course of the parliament (2019-20 to 2024-25), but frozen tax thresholds mean that for the typical employee, post-tax pay will rise by just 0.6% in real terms over this period, it said.
The thinktank also noted some “big winners” during the election year, with a “savings boom” stemming from the sharp rise in interest rates.
Better-off pensioners with savings and no mortgage would gain the most after a rise in total gross income from interest on savings to £90bn next year, equivalent to more than £3,000 a household on average, up from just £5bn in 2021-22.
The bulk of the savings windfall will go to the tenth of households with the most savings, giving them about £20,000 each on average, while the half of households with the lowest savings will receive about £100 each typically, the foundation said.
Households where people are aged 65 to 74 are expected to gain six times as much from the savings boom, on average, as those where people are aged 35 and under.
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The number of people living in absolute poverty – calculated as below 60% of the 2010-11 median income, adjusted for inflation – was projected to rise by 300,000 next year, reaching 12 million in 2024-25.
The BCC said a modest upgrade to the forecast growth rate of the UK economy this year was overshadowed by steep falls in business investment and weakening exports, limiting growth to between 1% and zero over the following two years.
David Bharier, the business lobby group’s head of research, said small and medium-sized firms were “struggling to rebuild confidence following three years of economic shocks”.
“Prolonged inflation, skills shortages and new trade barriers with the EU have fed into a climate of little or no growth.
“A rapidly increasing proportion of SMEs are also now worried about interest rates, which have dramatically raised borrowing costs in many cases,” he added.
“With further trade barriers looming, leading to higher import costs, and tightness in the labour market persisting, it is difficult to see how large-scale investment will be unlocked. Government needs to work with business to develop a clear path for the economy to promote investment and growth.”
