Extract C: Falling living standards in the UK?

According to the Office for Budget Responsibility (OBR), in 2022, the UK faced its biggest fall in living standards on record as the surging cost of living reduced real wages. The OBR also forecast a significant increase in unemployment.

Energy and food bills had risen dramatically due to shocks to the economy, such as labour shortages, a depreciation of the pound and the war in Ukraine. Inflation was at a 41-year high and average real household income was expected to fall by 7%, back to the level it was in 2013. The rising cost of living led to industrial action by workers trying to achieve pay increases that compensated for the rise in prices.

In response to the rise in inflation, the Bank of England increased Bank Rate. The rise in Bank Rate meant that financial institutions raised the rate of interest on mortgages. As a result, it has been forecast that house prices are likely to fall by around 9% over the next two years.

In his Autumn Statement of 2022, the UK Chancellor of the Exchequer, Jeremy Hunt, announced tax rises and cuts in public spending even though the UK economy was expected to contract in 2023. The cuts in public spending are likely to damage public services and came at a time when poverty and inequality appeared to be rising with life expectancy falling. Some have argued that tackling these issues, to prevent a further fall in living standards, is more important than introducing measures to increase productivity.

Source: News reports, 2022