Families are in for the biggest fall in disposable income since the Second World War, with households to be £3,203 worse off this year thanks to surging inflation and tax rises.
Britain’s cost of living crisis has intensified since the war in Ukraine sent oil and gas prices soaring and strangled an already stretched global supply chain.
Experts expect inflation to approach 9pc this year, dwarfing previous estimates, and remain above 7pc in 2023.
A shock £693 rise in energy bills next month is likely to be followed by an even larger jump in October. Consumers will have to grapple with sharp price increases across the board – from broadband and mobile phone bills to food prices – as inflation soars.
An estimated £71bn could be wiped off living standards in the most dramatic drop since records began, according to the Centre for Economics and Business Research, a consultancy. More than half of this will come as a consequence of Russia’s attack on Ukraine, it said. Inflation will peak at 8.7pc and be 4.1 percentage points higher than initially forecast by the end of the year, it said.
Britain faces the worst living standards crisis since the 1970s, the Resolution Foundation has warned. Mike Brewer from the think tank said families could experience greater price increases than the headline rates of 8pc. “Britain was already in the midst of a cost of living crunch before the conflict in Ukraine erupted,” he said.
A slew of tax rises will deliver an extra blow to take-home pay, with National Insurance contributions rising by more than 10pc in April. A worker earning the average salary of £31,077 will pay £268 more each year. Stealth freezes on tax-free allowances and benefit thresholds will also add billions to taxpayers’ bills.
The average household spends £30,655 a year, according to the Office for National Statistics. Inflation at 8.7pc would increase these outgoings by £2,667. Add the £536 NI bill for a couple on average salaries and this would reduce disposable income by £3,203, Telegraph Money analysis has found.
The Chancellor, Rishi Sunak, faces pressure to roll out more emergency measures to alleviate the strain during his spring statement on March 23.
More than two million extra households will be pushed into fuel poverty this April, totalling 6.5 million, according to the End Fuel Poverty Coalition, a campaign group. This could surpass 8.5 million by October if the energy price cap is raised to £3,000 a year, as projected.