Weak income growth in the UK leaves families ‘brutally exposed’ to soaring inflation

Anemic personal income growth in the UK since 2005 has left many households “brutally exposed” to rising inflation and the cost of living crisis, according to a leading think tank.

The Resolution Foundation concluded in a report released on Monday that real household disposable income growth for working-age families averaged just 0.7% per year in the 15 years before the Covid-19 pandemic. 19, down sharply from 2.3% per year. between 1961 and 2005.

The most vulnerable groups were rental families, single parents and those with young children, whose incomes on the eve of the pandemic were all significantly below the recorded median.

“Britain’s recent poor record on living standards – notably the complete collapse in poor household income growth over the past 20 years – must be reversed in the decade ahead,” said Adam Corlett, senior economist at the Resolution Foundation.

In the UK, consumer price inflation soared to 9.1% in May, the highest in three decades and higher than any other G7 country.

As a result, real household disposable income in the UK fell in the first quarter of this year for the fourth consecutive time. The Bank of England expects high inflation to persist longer than in other countries and to jump into double digits in the autumn when the new energy bill price cap comes into effect. Ofgem expects the cap to rise to 42% in October, from 54% in April. increase.

Last month, Chancellor Rishi Sunak announced a £15billion support package for the weakest households to help them cope with the cost of living crisis, including a one-off payment of £650 to about 8 million households receiving social benefits.

But Corlett suggested the only permanent solution to falling living standards was to raise “compensation and productivity levels” as well as strengthen the “social safety net” and reduce “housing costs”.

Wage growth – which is usually strongly linked to improved productivity – has collapsed, with Resolution Foundation analysis showing the typical wage is no higher today than before the financial crisis from 2008-09. This represents a loss of £9,200 a year, compared to a world in which wage growth had continued its pre-financial crisis trend.

The figures match Financial Times analysis which showed that over the past decade the standard of living in the UK has risen at the lowest rate since World War II, reflecting a lack of growth in the productivity.

The UK was one of the worst performers in Europe over the period 2007-2018, with only households in Greece and Cyprus recording lower growth in typical household income than those in Britain, according to the Resolution Foundation report.

Despite falling living standards, the report notes that the UK has a good “recent record” of job growth for the poorest households.

It revealed that between 2007-08 and 2019-20, the employment rate increased by 6 percentage points among the poorest half of the working-age population, compared to 2% among the richest half.

Despite this success, the report concluded that it would be “virtually impossible” for Britain to reverse its downward trend in living standards with the sustained increase in employment levels alone.