Government forecaster, the Office for Budget Responsibility (OBR), has warned the UK is facing its biggest drop in living standards on record as wages fail to keep pace with rising prices.
The OBR publishes a forecast twice a year and predicts that rising prices, tax hikes and the impact of the war in Ukraine will mean living standards will not recover to their pre-pandemic level until 2024-25.
The OBR now it expects growth of just 3.8% this year, while the following year will also see slower growth than the OBR predicted five months ago. In 2023, the UK is expected to grow 1.8%, down from 2.1%.
However, from 2024 growth is expected to accelerate faster than expected, rising 2.1% that year and 1.8% in 2025, up from 1.6% and 1.3% respectively.
Suren Thiru, Head of Economics at British Chamber of Commerce (BCC), said: “The OBR’s latest forecasts paint a bleak picture of the UK’s economic prospects over the near-term as the drag effect of rising inflation, supply chain disruption and higher taxes weakens key drivers of UK output.
“The robust forecast for business investment looks too optimistic with rising cost pressures, higher taxes and a deteriorating economic outlook likely to dampen investment intentions by more than the OBR’s latest projections suggest.
“The OBR has also confirmed that the UK’s fiscal outlook has improved since the Autumn Budget, despite a sharp uptick in debt interest payments. This leaves the chancellor with more than enough fiscal headroom to better support households and businesses through this difficult period.”