Inflation will push living costs 10 per cent higher than pre-crisis peak
Inflation could push the cost of living 10 per cent higher than before the financial crisis by 2020, with 11m families below a poverty benchmark, according to a new report.
Almost a third of the UK’s population falls below the minimum income standard measure used in the report by academics at Loughborough University and the independent Joseph Rowntree Foundation (JRF).
Increased inflation means real hourly pay may not rise above its pre-recession high before the end of the Parliament, the report says.
Read more: Real wage growth lowest since 2014 as inflation starts to bite
The price of a basket of goods deemed to be necessary for households to support an adequate standard of living has risen by as much as 30 per cent since 2008, at the same time as wage growth has been weak.
Unemployment has stayed sustainably below levels not seen since 2005, but the report finds employment growth has been at lower income levels than previously seen.
Three million working-age households have at least one person in work, but 56 per cent of single-breadwinner families with children live below the minimum income standard.
Single-parent families could be particularly vulnerable to rising inflation, the report says, with 42 per cent of lone parents below the benchmark.
Campbell Robb, chief executive at JRF, said: “This could be a very difficult time for just managing families as rising inflation begins to bite into finely-balanced budgets.”
Read more: Inflation: How far will UK consumer prices rise this year?
Matt Padley, a research fellow at Loughborough University and one of the report’s authors, said: “With forecasts of rising inflation, slowing wage growth combined with cuts to tax credits, the outlook is set to be highly challenging for families whose low incomes mean they are, at best, only just managing to make ends meet.”
However, the use of the minimum income standard has been called into question in some quarters.
Chris Snowdon, head of lifestyle economics at the Institute for Economic Affairs (IEA) said: “While this report rightly points to the problem of high living costs in this country, measuring standards of living on how frequently you are able to replace your wardrobe or afford luxuries like a barbecue set, are not exactly the types of things most people would categorise as basic necessities.”
“We absolutely do need to address the ever-increasing cost of living by deregulating the housing and childcare sectors to bring down costs for all. But the ‘needs’ listed in the minimum income standard lend themselves to headline grabbing statistics rather than outlining actual basic needs.”