biggest drop in living standards since 1956

8 months ago by Oliver Atkinson

UK living standards have fallen at the fastest rate in more than eight years in February as wages lagged further behind inflation. The Consumer price Index, which measures the speed at which the prices of the goods and services bought by households rise or fall, was last at 6.2%, The Office of Budget Responsibility is expecting CPI to average 7.4% for the whole of 2022, way above the Bank of England’s target of 2%.

The rise in inflation over the previous year can be blamed on the record rise in commodity costs which have further accelerated since the Russia-Ukraine war. The pandemic has also led to a disruption in global supply chains, companies are now experiencing higher costs suffered from bottlenecks and congestion at ports. Coupling this with the pent-up demand created from being suck at home due to the pandemic, demand has outpaced supply.

The squeeze on household incomes is now expected to hurt overall economic growth for the rest of the year, with fears that a recession may arise in 2023. More pain also lies ahead for households, with recent tax and energy bill increases, the OBR is estimating living standards not recovering to pre-pandemic levels until at least 2024. The OBR is also expecting that UK inflation will peak at 8.7% by the end of the year, a 40 year high, last seen during the Falklands war in 1982.

The worst cost of living crises in four decades is pressurising the government to do more to help consumers. The chancellor, Rishi Sunak, plans to help support the households impacted the most by the squeeze, however, he has been criticised for delivering an uninspiring March statement. Meanwhile, The Bank of England is on course to raise interest rates for the fourth time to help combat inflation.