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UK already in recession as cost of living crisis hits household incomes

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In a grim assessment by the National Institute for Economic and Social Research, average real disposable income will fall by an unprecedented 2.5% this year and remain 7% below its pre-Covid level until 2026.

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It also estimated that the number of households living paycheck to paycheck would nearly double to 7 million by 2024, including 5.3 million without any savings. They will be forced into debt or into arrears as soaring energy bills eat away at incomes, the group said.

The warning of a recession, which the NIESR says has started this quarter and will continue until early 2023, is a stark reminder of the challenges facing the two candidates vying to replace Boris Johnson as Premier minister. Economists have said the depth of the crisis will force the government to respond, suggesting a set target is needed instead of the financial management approach of the past.

He also pointed to calculations showing the economic gap between London and the rest of the UK is widening. This suggests that the government’s flagship policy of “leveling off” less affluent areas is falling short.

The think tank suggested that the UK’s most vulnerable needed extra help in the face of consumer price inflation which it said would hit nearly 11% this year. Retail price inflation, meanwhile – a broader measure used to set increases in train fares and government interest costs, will hit 17.7%, the highest since 1980,

In response, he sees the Bank of England raising interest rates to 3% next year. Unemployment will exceed 5% as demand falls, according to projections.

“It is now up to the Monetary Policy Committee to ensure that inflation comes down next year and to the new Chancellor to support the households most affected by the recession and the squeeze on the cost of living,” Millard said.

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