THE UK faces its biggest drop in living standards on record, as the cost-of-living crisis eats into people’s wages.
The government’s forecaster said that disposable household incomes, when adjusted for rising prices, would dive by seven per cent in the next few years.
Living standards will not recover to the levels they were last year until 2027-28, it added.
It came as the Chancellor said the UK was already in recession, and set to shrink further next year.
However, Jeremy Hunt said his Autumn Statement, which unveiled £55 billion of tax rises and spending cuts, would lead to a “shallower downturn” with fewer jobs lost.
Energy and food bills have shot up due to the war in Ukraine and the pandemic, and are squeezing household budgets.
Inflation, the rate at which prices rise, is at a 41-year high, and the Office for Budget Responsibility (OBR) warns it is dragging on the economy.
The forecaster said that overall, the UK economy was forecast to grow by 4.2 per cent this year.
But the OBR said it would shrink by 1.4 per cent next year, before rising by 1.3 per cent, 2.6 per cent, and 2.7 per cent in the following three years.
A recession is defined as when a country’s economy shrinks for two three-month periods, or quarters, in a row.
Typically, companies make less money, pay falls, and unemployment rises. This means the government receives less money in tax to use on public services. (BBC)