The UK economy is sliding into recession, relentlessly ahead of a cost-of-living crisis that will leave more than 5 million households with depleted savings by 2024, according to new forecasts from the National Institute of Economic and Social Research. .
The panel expects GDP to decline “slightly” in the second half of 2022 and the first quarter of 2023, but said Wednesday that the risks of a deeper recession are growing. It saw an “even chance” that GDP would be lower at the end of 2022 than the previous year.
He also said regional disparities were widening, with London ahead of the rest of the country.
Niesr called on the next prime minister to step up direct support for the poorest families, rather than prioritizing tax cuts, arguing that even if inflation slows next year, food and energy prices would remain at levels that would cause continued hardship for many people in 2024.
“Political uncertainty in Westminster is premature and will delay fiscal support by the millions,” Niesr said. She urged the government to increase its energy subsidy to low-income households and to increase subsidy payments for at least six months when regulated gas and electricity prices rose again in October.
The £ 200 billion in savings accumulated by some households during the pandemic could help support consumer spending in the second half of the year, Niesr said. But these have been distributed “very unevenly”, with the demand for overseas holidays “on the rise as millions of people are said to be struggling with the purchase of basic necessities.”
The panel predicts that the number of households with no savings to rely on will double to 5.3 million by 2024, with nearly 7 million households living from one paycheck to the next with savings worth less than two months. of disposable income.
More than 1 million families could experience severe poverty, Niesr added, with food and energy bills exceeding their disposable income and forcing them “to choose between eating and heating” or to turn to loan sharks.
“There is no substitute for continued targeted welfare,” Niesr said, noting that the conservative party leadership race had focused on tax cuts rather than the “urgent need to continue supporting the most vulnerable.”
He also said the government should use part of its fiscal space to raise public sector pay according to the needs of individual sectors, rather than “with an eye on inflation”, arguing that public services were generally provided without a price, so it did not directly feed consumer price inflation.
The panel accused both the Bank of England and the government of allowing high inflation to rise, arguing that premature fiscal tightening had left monetary policymakers “reluctant to raise rates with demand. still fragile “.
Stephen Millard, Niesr’s deputy director of macroeconomics, said it is now up to “the monetary policy committee to make sure inflation falls next year and the new chancellor to support the most affected households.”