According to new forecasts from the National Institute of Economic and Social Research, the UK economy is sliding into recession, with no end to a cost of living crisis that will leave more than 5 million households with their savings by 2024.
The think tank expects GDP to fall “slightly” in the second half of 2022 and the first quarter of 2023, but said on Wednesday the risks of a deeper recession were mounting. It saw an “even chance” that GDP would be lower by the end of 2022 than a year earlier.
It also said regional disparities were widening, with London ahead of the rest of the country.
Niesr called on the next prime minister to increase direct aid to the poorest households, rather than prioritize tax cuts, arguing that even if inflation slowed next year, food and energy prices would remain stable that would cause lasting problems for many people in 2024.
“Political uncertainty in Westminster is not timely and will delay fiscal aid to millions,” Niesr said. It urged the government to increase its energy subsidy for low-income households and increase benefits for at least six months when regulated gas and electricity prices rise again in October.
The £200 billion in savings accumulated by some households during the pandemic could help support consumer spending in the second half of the year, Niesr said. But these were “distributed very unevenly”, with demand for foreign holidays “continuing to rise as millions of people struggle to buy household necessities”.
The think tank predicts that the number of households with absolutely no savings to fall back on will double to 5.3 million by 2024, with nearly 7 million households having to live from one paycheck to another with less than two months of savings. spendable income.
More than 1 million households could experience severe poverty, Niesr added, with food and energy bills exceeding their disposable income, forcing them to “choose between eating and heating” or turning to loan sharks.
“There is no substitute for continued targeted prosperity,” Niesr said, noting that the race for conservative party leadership was focused on tax cuts rather than the “urgent need to continue supporting the most vulnerable”.
It also said the government should use some of its fiscal space to increase public sector wages based on the needs of individual sectors, rather than “for inflation”, arguing that public services were generally supplied without price, and therefore do not feed directly on consumer price inflation.
The think tank accused both the Bank of England and the government of allowing high inflation, arguing that a premature tightening of fiscal policy had made monetary policymakers “reluctant to raise rates while demand was still fragile” .
Stephen Millard, Niesr’s deputy director for macroeconomics, said it is now up to the monetary policy committee to ensure inflation falls next year and that the new chancellor supports the most affected households.