Cost of living expected to rise by £1,200

The rising cost of living will become the dominant issue facing Boris Johnson, the head of an economic think tank has warned, as families faced a £1,200 hit from April.

The Resolution Foundation (RF) said families would typically face that level of impact as the energy price cap is raised and a 1.25 percentage point increase in National Insurance contributions (NICS) comes into effect.

At the same time, rising inflation means that real pay levels are set to stagnate, with real wages next Christmas forecast to be no higher than they are this year.

The Bank of England expects the inflation rate to hit about 6% by spring 2022, meaning the benefits of any wage increases are likely to be eroded by rising prices.

Resolution Foundation chief executive Torsten Bell said: “The fact that two such big changes are coming on top of each other in April, at the same time as our wages aren’t rising that significantly because of higher inflation in general, I think means that this is going to be the dominant story once we come out of the bad – but hopefully short-lived – Omicron wave.”

He said the “squeeze” on living standards is likely to be so severe that Chancellor Rishi Sunak will come under intense pressure to act to alleviate the economic pain.

The latest warning comes amid fears among Tory MPS that a new year “costof-living crisis” will further undermine voter support for the government that is already badly dented by reports of Downing Street parties in breach of Covid rules.

The RF said the peak of the “squeeze” looked set to be in April, when the cap on energy bills is expected to rise by around £500 a year while the cost of energy firm failures would add another £100 to consumer bills.

The price rise will disproportionately affect low-income families who spend more of their income on energy.

It is expected to account for 12% of the income of the poorest households compared with 8.5% now.

Meanwhile, the RF said real wages, which were flat in October, had “almost certainly” started to fall and would not pick up until the final three months of 2022, leaving real pay just 0.1% higher than it was at the start of the year.

By the end of 2024, real wages would still be £740 a year lower than if the UK’S “already sluggish” prepandemic pay growth continued.

Mr Bell said 2022 looked set to be defined as the “year of the squeeze”.

He said: “The peak of the squeeze will be in April, as families face a £1,200 income hit from soaring energy bills and tax rises.”

A government spokesman said ministers had put in place £4.2 billion worth of “decisive action” to help support families with the cost of living.

HIT: Resolution Foundation chief executive Torsten Bell said the changes are “severe”.