Household incomes set to fall by £2,100

UK households are just halfway through a cost of living squeeze that will last two years, according to a new report.

The Resolution Foundation think tank says that the average household will be £2,100 worse off by the end of the next financial year and only the very richest households will see their incomes rise.

A drop in the current high level of inflation will be offset by a continued increase in living costs as a result of higher energy bills, increased personal taxes and rising mortgage costs.

After housing costs, the typical disposable income for a working age family is set to fall by 3% in the current financial year and by 4% over the following 12 months.

With a weak recovery anticipated from 2024 onwards, households will be worse off than they were before the pandemic until 2028.

Millions are already struggling, and lower-income families in particular are finding it hard to cope due to the higher cost of essentials like food and energy.

“The cost of living crisis is disastrous for family finances, particularly for those on low incomes and families with more than two children,” said Dr Jennifer Dixon, chief executive of health care charity the Health Foundation. “The crisis is causing immediate damage to the nation’s health with higher food insecurity, people under strain as they fall behind with bills, and increased prevalence of emotional distress.

“Action to tackle the cost of living must recognise both immediate and longer-term health risks created by growing financial insecurity and debt. The Government must act now and craft an intelligent strategy targeting those at greatest risk to avoid hampering the nation’s prosperity in years to come.”

Rising living costs squeeze UK households’ financial wellbeing

UK household finances took a hit in the fourth quarter of 2021, according to a new report.

A quarterly index compiled by Scottish Widows shows the fastest fall in UK household financial wellbeing since the start of the pandemic. Overall perceptions of financial wellbeing fell from 44.0 in Q3 to 40.1 in the final quarter of the year — the biggest deterioration in the index since the second quarter of 2020, with the 50-mark separating improvement from worsening in the household’s financial situation.

It came as surging living costs led to the steepest fall in cash availability for almost eight years and consumers worried about the impact of inflation.

Many households also experienced a reduction in income from employment and there were concerns about job security, particularly in December as a result of the Omicron variant.

And with rising living costs hitting household budgets, pressure intensified on people’s saving and disposable income. Only the highest earners added to their short-term saving pots during Q4, with lower earners struggling to put money aside, Scottish Widows said.

“One in five are not currently saving any money, slightly up from the same time last year, and almost a quarter would now consider withdrawing from their pension early if it was possible,” said Emma Watkins, managing director of Retirement and Longstanding at Scottish Widows.

“With the emergence of the Omicron variant adding to uncertainty, households will undoubtedly be hoping that the impact to their finances is modest as we enter 2022.”