BRIEFING - In at the deep end - The living standards crisis facing the new Prime Minister

Although the sharp rise in the cost of living can take much of the blame for the fall in household incomes over the Parliament, the continued weakness predicted for the middle of this decade is driven instead by low productivity in the UK economy, and weak earnings growth, of the sort that the UK has been stuck with since the mid-2000s. [...] Although global supply shocks and war in Ukraine are the causes of the short-run disaster of crippling energy bills, the weak performance of household living standards across the Parliament as a whole is grounded in the combination of low productivity and weak earnings growth that has been behind the relative decline of the UK economy since the mid-2000s. [...] Resolution Foundation In at the deep end | The living standards crisis facing the new Prime Minister 12 in the left panel, households in the lowest income decile experienced an inflation rate of 11 per cent, compared to 9 per cent for households in the hi. [...] In normal times, this means that the real value of benefits stays broadly constant, but the combination of rapidly rising inflation and the fact that there is a six month lag between the measure of inflation and the increase to benefits means that the real value of benefits is set to continue its rollercoaster ride, as shown in Figure 5. [...] Interestingly, incomes at the top of the distribution are set to fall the most, with incomes in the top half of the distribution falling by 8 per cent, compared to 6 per cent for the bottom half of the distribution – likely reflecting the bigger medium- term hit to earnings than to benefits, as well as tax changes.