Living standards in the UK are set for their largest drop on record thanks to a perfect storm of rising inflation, the economic hit of the pandemic and Russia’s invasion of Ukraine, the UK's fiscal watchdog has said.
Wages are failing to keep up with rising prices, according to the Office for Budgetary Responsibility (OBR), as rapidly rising energy prices push inflation towards 9%, its highest level in 40 years.
According to the OBR, Russia's invasion of Ukraine has had "major repercussions for the global economy, whose recovery from the worst of the pandemic was already being buffeted by Omicron, supply bottlenecks, and rising inflation".
The war has left oil and gas prices far higher than their historical averages - a fact that will "weigh heavily on a UK economy that has only just recovered its pre-pandemic level", the OBR said in its report released on Wednesday.
Higher energy bills will lead to further inflation, which in turn will put pressure on household consumption and erode incomes.
Coupled with rising taxes, this fall in spending power will lead to a decline of 2.2% in living standards this year and next - the largest fall on record.
As a result, living standards will not recover to their pre-pandemic level until 2024-25, the OBR added.
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