Typical working-age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20
According to research published by the Resolution Foundation, households are on track for a year of income stagnation in the run-up to the next election, and poorer families are set for further income falls, as tax rises, the end of cost-of-living payments and higher housing costs offset an improving economic outlook.
The think tank’s Living Standards Outlook brings together forecasts on pay, jobs, housing, tax and benefit changes and other economic trends to examine what lies ahead for living standards as we approach the next general election.
It says that key aspects of the UK’s economic outlook are improving. Inflation has started falling from its October 2022 peak of 11.1% and could be below 3% by the time of the election. Average earnings are now growing faster than prices, and interest rate rises are likely approaching their end.
But the Resolution Foundation warns that higher mortgage costs from rising interest rates have yet to be passed on to households. The government’s cost-of-living payments for low-income households are due to end after this winter, while some gains from stronger pay growth will be swallowed by higher taxes.
Household income
Pay awards drop below 6% for first time this year
Inflation-adjusted gross pay is set to rise by 2.9% over the course of the parliament, but frozen tax thresholds mean that for the typical employee, post-tax pay will rise by just 0.6% in real terms.
The Foundation’s analysis finds that real disposable household incomes for typical working-age people are set for zero growth next year, having fallen by 4% between 2021 and 2023.
Low to middle-income households fare worse, with the poorest on track to see another disposable income fall of around 1%. A further 300,000 people are set to fall into absolute poverty, says the report.
Adam Corlett, principal economist at the Resolution Foundation, said: “The good news for the government is that Britain’s economic outlook is improving as it enters a crucial election year. The bad news is that the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households.
“Rapidly rising interest rates mean that families remortgaging next year could see their bills rise by £3,000, while richer and older households are set to take the lion’s share of Britain’s £90 billion savings income boom.
“The worst of the cost-of-living crisis may be behind us, but except for those with significant savings, it is stagnant living standards rather than boomtime Britain that the immediate future has in store.”
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