Millions 'will feel like they're living in a recession' even if UK avoids one
The cost-of-living crisis will “feel like” a recession for seven million people even if Britain technically avoids one, experts warn today.
Issuing its quarterly monthly outlook, the National Institute of Economic and Social Research claims the UK “will likely avoid a protracted recession” this year - but economic growth “will remain close to zero” at just 0.2%.
It warns: “We project that seven million UK households - one in four - will be unable to meet in full their planned energy and food bills from their post-tax income in 2023-24, up from around one in five in 2022-23.”
Unemployment is set to rise from 3.7% to 4.7% by autumn 2024.
Middle-income families will suffer up to a £4,000 hit to their finances, with 10.7% inflation and the Bank of England’s 4% base interest rate - a 14-year high - hammering households.
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The NIESR adds: “With the cost-of-living crisis having a lasting effect on households, for at least seven million people it will certainly feel like a recession.”
Unemployment is set to rise (Getty Images)The poorest fifth of households have seen their disposable income plunge by 18% since the start of the coronavirus pandemic, compared with 9% for the richest fifth - worsening inequality.
And while London’s productivity is due to have increased since the start of the Covid-19 crisis, it is expected to have dropped in the East Midlands and West Midlands.
Highlighting regional differences hitting key Red Wall areas, the charity says the North East “will see significant destitution” by the end of 2024, with 30% of households there facing “extreme poverty”.
Analysts said “anaemic growth and persistent inflation continue to damage UK households”. The think tank forecasts price rises will still be running above 3% at the end of next year, with inflation not returning to the Bank’s 2% target until summer 2025.
NIESR deputy director Professor Adrian Pabst said that when inflation fell, prices did not tumble.
Even when inflation falls prices will remain high, warned experts (Getty Images/Science Photo Library/SCU)“Even when inflation comes back down to something like 2% - as indeed it will - price levels will remain high,” he warned.
“Food and energy will become permanently more expensive.”
Hard-up families will be forced into “drawing on savings or going into further debt to cope”, he feared.
Fewer workers will be able to afford to retire early, while “workers in the 50 to 64 age group return to the labour force” having previously taken early retirement, according to its forecast.
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NIESR director Jagjit Chada blamed Brexit, the pandemic and the war in Ukraine for the economic misery dogging Britain as warned of a “permanent reduction in our standard of living”.
“Consistently we are getting these downward shocks that are scarring the economy,” he said.
“The shocks that have come along have progressively made us poorer per person.”
Prof Pabst added: “Low-income households have seen their disposable income fall by nearly 20% since the onset of Covid.
“Those worst affected tend to live in some of the most economically deprived areas of the country, including parts of the three devolved nations and the North-East of England whereas London and the conurbations of the South East power ahead.
Rishi Sunak has trumpeted the Government's levelling-up agenda (Getty Images)“We are also seeing the return of the ‘squeezed middle’ - middle-income households who are losing out most from an escalation in the price level and the increase in the Bank rate from 0.1% to 4%.”
He took aim at government claims about levelling-up - a flagship Tory policy in the 2019 election.
“We’re not levelling-up, we are seeing widening regional inequalities,” he said.
“We seem to be levelling-down.”
He called on ministers to pump various levelling-up funds into one pot of cash and create a National Investment Bank with £50billion of finance.
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