Families face a “marmot year” as living standards come under further pressure in 2023, a think tank warned.
While the year ahead may provide economic policymakers with some relief, with signs of declining inflation and interest rates lower than feared, household finances will face a repeat of the strain in 2022 as the cost-of-living crisis deepens, according to the outlook for the New Year from the Resolution Foundation.
The Foundation described 2022 as terrible, with real household disposable income falling by 3.3%, or £800 per household, over the year, the biggest annual decline in a century.
Inflation may have already peaked at 11.1% in October and wholesale energy prices have fallen significantly, the Foundation said.
It said companies have also reported that recruitment problems are decreasing.
But it added that in 2023, households will see further pressure on their living standards and their income is expected to fall by 3.8%.
This is despite benefits and the national living wage set for welcome increases of 10.1% and 9.7% respectively in April, it said.
Wages will continue to fall in real terms until the second half of 2023 and are unlikely to return to current levels until the second half of 2024, said the think tank, which focuses on improving the living standards of people with disabilities. low to middle incomes.
Household spending on utility bills is expected to reach record highs as retail prices continue to rise and government support is scaled back. A typical household energy bill will rise to £2,450 in 2023, up from £1,550 in 2022 and £1,170 in 2019, the Foundation said.
While support for utility bills is being scaled back, the report noted that tax increases will be scaled up, with a typical middle-income household seeing their personal tax bill rise by around £1,000 from April next year.
Rapidly rising interest rates in 2022 will also feed into higher mortgage payments in 2023, as approximately two million households move to new fixed-rate deals.
Findings from a new YouGov survey commissioned by the Resolution Foundation of 10,470 adults show that people are more than four times as likely to believe their financial situation has gotten worse rather than better over the past year.
One in eight (12%) said their financial situation had improved and more than half (57%) said it had deteriorated.
Torsten Bell, CEO of the Resolution Foundation, said: “From a cost-of-living standpoint, 2022 was a truly horrendous year – far worse than any other year in the pandemic or financial crisis.
“2023 should see double-digit inflation return, but it looks set to be a groundhog year for many families whose incomes appear to be falling as hard as they were in 2022.
“Many families will be helped by benefits and the increase in the national living wage, both about 10% in April.
“But this will be swamped by shrinking pay packages, a record £900 increase in utility bills, tax bills for the average household rising by £1,000, and millions seeing their mortgage bills rise by four figures.
“Family living standards are going to get a lot worse in 2023 before it gets better.”
A spokesman for the Ministry of Finance said: “We are committed to supporting families with children. That’s why this year we’ve increased both child support and child tax credits in line with inflation and made changes to Universal Credit to help working families keep more of what they earn. .
“We also have a plan that will help to more than halve inflation next year, easing the financial pressures faced by households, and we have already taken millions of people out of taxation altogether through the tax-free allowances for both income tax as an income tax increase. and National insurance with more than inflation since 2010.
“This comes on top of substantial cost-of-living support, with everyone benefiting from low energy bills this winter and more than eight million vulnerable households who have already received £1,200 in cash payments direct to their bank accounts – with a further £900 for those with a means-tested benefit next year.”