Low to middle income households facing seven year fall in living standards

9th November 2023

New research by National Institute of Economic and Social Research (NIESR) has found that low to middle income households are facing seven years of falling living standards

NIESR says that GDP growth will remain sluggish in 2023 and 2024 as the monetary policy tightening continues to bite and expects GDP growth of 0.6 per cent in 2023 and 0.5 per cent in 2024.

Lockdowns and restrictions on earnings, followed by price hikes and Bank of England interest rate hikes since December 2021 to help tame inflation, have meant wages have mostly struggled to keep pace with price growth and rising borrowing costs alike. The rate of Inflation peaked last year above 11% but it currently stands at 6.7%. The annual pace of price increases is forecast to have fallen dramatically last month.

NIESR predicts that the MPC has done enough to bring CPI inflation back down to target, which it reaches towards the end of 2025. It also think interest rates have peaked at 5.25 per cent and do not expect any cuts in rates until late next year. When interest rates do come down, it is expected to reach between 3 and 3.5 per cent, compared with the market’s current view of an equilibrium rate of just over 4 per cent.

Professor Adrian Pabst, Deputy Director for Policy at the NIESR, said “Most households are just one pay cheque away from being homeless. Higher real wages this year are a welcome boost, especially for low-income working families who have been hit hardest by the COVID and inflation shocks. Advertisement. But a return to pre-pandemic living standards will require sustained real wage growth, including further increases in the National Living Wage.”