Blow to living standards ‘worst for seven decades’

FAMILIES will be clobbered by the biggest hit to their living standards since the 1950s, the UK fiscal watchdog has said.

Household spending will fall dramatically in the next year due to sky-high inflation and slower economic growth, according to the Office for Budget Responsibility (OBR).

The crisis represents a bigger hit than families suffered during the pandemic or the 2008 financial meltdown.

It is also a worse blow than the recessions of the 1990s or 1980s, and the oil shocks of the Seventies.

In a bleak assessment, the OBR slashed its economic growth outlook and predicted inflation could reach 8.7 per cent later this year – the highest for 40 years.

It is now forecasting gross domestic product to rise by 3.8 per cent in 2022, down from its six per cent forecast.

The OBR said real household disposable incomes will plunge by 2.2 per cent per person in 2022-23, the largest fall since official records began in 1956-57, and won’t recover until 2024. And it warned: “The uncertain course of the invasion of Ukraine and international sanctions brings with it the prospect that energy prices could rise further than markets (and therefore our forecasts) currently assume… driving inflation close to double digits and GDP 0.8 per cent lower in the near term.”

Mr Sunak admitted the OBR forecasts do not take into account the full impact of the war in Ukraine. He said: “We should be prepared for the economy to worsen.”

The OBR forecasts that interest payments on UK debt will rocket to £83billion in 2022-23 due to soaring inflation and rising interest rates, the highest on record.

Borrowing is also set to soar to £99.1billion in 2022-23, the OBR warned. However, this will fall to £31.6billion by 2026-27.

Mr Sunak said: “By 2024, the OBR expect inflation to be back under control, debt falling sustainably, and the economy growing.”