Household incomes to fall for two years

BRITONS face two years of tumbling household incomes with inflation set to soar to more than 13% and the economy plunging into the longest recession since the financial crisis, the Bank of England has warned.

The Bank made the grim prediction as it raised interest rates from 1.25% to 1.75%, the biggest increase for 27 years. The move, aimed at controlling runaway inflation, puts further pressure on mortgage holders.

In a dire outlook for UK economy, the Bank’s Monetary Policy Committee (MPC) forecast inflation peaking at 13.3% in October, the highest for more than 42 years.

The runaway costs are largely due to the soaring price of energy, as the fallout from Russian President Vladimir Putin’s war against Ukraine forced gas prices skywards.

Regulator Ofgem is expected to push up the cap on household energy bills to around £3,450 in October, the Bank said.

The energy price will help kick off a five-quarter recession as the Bank forecast gross domestic product (GDP) to shrink in every three-month period from October to the start of 2024. GDP will fall by as much as 2.1%, the Bank said.

The report paints a stark picture for households. On a real basis their post-tax incomes are set to fall 1.5% this year and 2.25% next, despite the current Government support.

It would be the first time since records began in the 1960s that household incomes have fallen for two years in a row.

Joseph Rowntree Foundation chief economist Rebecca McDonald said: “We already know seven million low-income families had to sacrifice food, heating, even showers, this year because they couldn’t afford them.

“While the Government might have taken a break from acting on the cost-of-living emergency, these families can’t take a holiday from the year of financial fear. “They will be wondering why further urgent solutions needed to shore up family finances ahead of the winter are not yet being put in place.”

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