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UK households to be £2,100 worse off amid cost of living crisis, think tank warns

Cost of living:  Care worker Nicola Frape makes a mug of tea in the kitchen of her home in Ashford, Kent, Britain February 17, 2022. Picture taken February 17, 2022. REUTERS/John Sibley
Cost of living: UK households are being hit with higher energy bills and rising mortgage costs. Photo: John Sibley/Reuters

The cost of living squeeze is set to leave UK households £2,100 worse off even as inflation comes down, according to the Resolution Foundation.

Average after-housing-costs incomes for working-age families are set to fall by 3% in 2022-23, and by 4% in 2023-24 ⁠— a 7% fall over two years, worth £2,100 for a typical family, the think tank said.

Resolution Foundation warned that despite expectations for inflation to start falling rapidly, this relief will be offset by a range of living standards headwinds, from higher energy bills, to rising personal taxes and rising mortgage costs for three million households.

“Britain is only at the mid-point of a two-year income squeeze, which is set to leave typical families £2,100 worse off. The crisis is already taking its toll on families, with over 6 million adults reporting they are going hungry as a result,” Lalitha Try, researcher at the Resolution Foundation, said.

Read more: UK house prices fall more than £4,100 in one month as living costs tighten

“Low-income families have been hit hardest by soaring energy bills and food prices, and are most likely to have seen both their financial circumstances and their health deteriorate. The government has rightly prioritised them in its crisis response ⁠— with support targeted at vulnerable households and tax rises hitting better-off families,” she added.

The scale of this fall is considerably higher than the 5% post-financial-crisis squeeze and, when combined with a weak recovery from 2024 onwards, would leave typical household incomes still below pre-pandemic levels even by 2027-28.

The report also found that 23% of adults ⁠— around 12 million people in total ⁠— said they couldn’t afford to replace or repair major electrical goods like fridges or washing machines. Meanwhile, 11% ⁠— equivalent to 6 million people ⁠— said that they were hungry but didn’t eat because of a lack of money in the past month.

Resolution Foundation warned that with the crisis currently being driven by the higher cost of essentials like food and energy, lower-income families are finding it hardest to cope.

Read more: Drivers paying more as supermarkets resist lowering petrol prices further

Among people in the poorest fifth of working families, 32% say they are not confident about their finances as a whole over the next three months, while over a third (34%) said their health has been affected by the rising cost of living.

The Foundation’s annual Living Standards Outlook 2023 uses data from a new YouGov survey of 10,470 adults to assess how people are coping with the cost of living crisis this winter.

Watch: Cost of living bites, Britons turn to 'warm banks'