UK suffering worst living standards squeeze on record, OBR boss warns
Brits’ spending power won’t recover to pre-pandemic levels for another half decade, the boss of the UK’s economic watchdog has warned.
The UK is experiencing the “biggest squeeze on living standards we’ve faced in this country on record”, Office for Budget Responsibility (OBR) chairman Richard Hughes said today.
His stark warning came after the regulator’s latest economic forecasts – published alongside Chancellor Jeremy Hunt’s budget earlier this month – suggested inflation would fall to less than three per cent by the end of this year.
Wages are poised to trail the rate of price increases for most of 2023, dealing a heavy blow to families’ budgets. Living standards fall when inflation tops pay growth.
The Bank of England earlier this week jacked up interest rates for the eleventh time in a row to a post-financial crisis high of 4.25 per cent, heaping more pressure on incomes.
Speaking on the BBC’s Sunday with Laura Kuenssberg programme, Hughes said: “I think we’re seeing clearly the biggest squeeze on living standards we’ve faced in this country on record.”
“But we do expect, as we get past this year and we go into the next three or four years, that real income starts to recover.”
“But it’s still the case that people’s real spending power doesn’t get back to the level it was before the pandemic even after five years, even by the time we get to the late 2020’s.”
He added: “It’s partly because UK growth has been held back by a range of supply constraints on some of the key drivers of growth.”
“We’ve lost around 500,000 people from the labour force, we’ve seen stagnant investment since 2016 and also our productivity has slowed dramatically since the financial crisis and not really recovered.”
Hughes told the BBC that the OBR’s forecasts were tough to produce due to the very “volatile” environment, but he defended the organisation’s record compared to Treasury predictions.
Asked how confident he was about the sub three per cent projection, Hughes said while there was still high uncertainty, current levels of double digit inflation were due to energy costs and food prices, both of which he said he expected to see come down this year.
Spending power linked to Covid and Ukraine?
Levelling up secretary Michael Gove defended the government’s record, telling Kuenssberg the effects on spending power were relating to the UK “dealing with the aftershocks of two significant events”.
He said: “Both the war in Ukraine – the first time we have had war on this scale in the continent of Europe since the Second World War – and the Covid pandemic – the biggest global health pandemic since the end of the First World War.
“They have had a huge effect on our economy and others.”