[Source: BBC]

The UK faces its biggest drop in living standards on record as the surging cost of living eats into people’s wages.

The government’s forecaster said that household incomes – once rising prices were taken into account – would dive by 7% in the next few years.

It also expects the number of people who are unemployed to rise by more than 500,000.

It came as the chancellor said the UK was already in recession and set to shrink further next year.

But Jeremy Hunt said his Autumn Statement – which unveiled £55bn of tax rises and spending cuts – would lead to a “shallower downturn” with fewer jobs lost.

Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “Surging global energy prices have made the UK a poorer country. The result is an OBR (Office for Budget Responsibility) forecast that the next two years will see the biggest fall in household incomes in generations.”

Energy and food bills have shot up due to the war in Ukraine and pandemic, and are squeezing household budgets.

Inflation – the rate at which prices rise – is at a 41-year high, which the OBR says is dragging on the economy.

The forecaster said price rises were likely to peak at 11% in the final three months of this year, thanks largely to the government’s energy price guarantee scheme which limits bills.

However, it said inflation would still “erode real wages and reduce living standards” this year by the biggest margin seen since 1956, when records began.

It expects household incomes when adjusted for inflation to fall back to the levels they were in 2013. It will then take six years for them to recover, although they will still be “over 1% below pre-pandemic levels” by 2028.

Jasmine Hurley, 18, and Peter Fletcher, 22, moved to Gloucester about a month ago and are living with Jasmine’s mum.

Peter, who works in a restaurant as a waiter, says it has got harder to save money and he is worried.

“It’s gone from being able to save a few hundred every month to, can I save £50 a month?” he told the BBC.

“If nothing changes this is going to get worse until either we crumble, or something changes.”

Jasmine has finished school and is looking for a job. She feels upset about having to cut back on things and says the future feels bleak.

“If I want to buy a house, it’s going to be impossible. They need to cut down on house prices, it’s affecting all of us – especially working class people.”