Consumers’ spending power could take at least five years to recover to pre-pandemic levels, the boss of the Government’s tax and spending watchdog says.
Richard Hughes, chairman of the Office for Budget Responsibility, warned that the UK is facing its “biggest real drop in living standards”.
He said: “I think we’re seeing clearly the biggest squeeze on living standards we’ve faced in this country on record.”
“But we do expect, as we get past this year and we go into the next three or four years, that real income starts to recover.”
“But it’s still the case that people’s real spending power doesn’t get back to the level it was before the pandemic even after five years, even by the time we get to the late 2020s.”
Mr Hughes warned that growth has been stunted by several issues. He said: “It’s partly because UK growth has been held back by a range of supply constraints on some of the key drivers of growth.”
“We’ve lost around 500,000 people from the labour force, we’ve seen stagnant investment since 2016 and also our productivity has slowed dramatically since the financial crisis and not really recovered.”
Britain will join Russia this year as the only major economies likely to contract, the Organisation for Economic Co-operation and Developmment warned earlier this month.
The forecast said GDP will contract by 0.2 percent in 2023, in line with the OBR’S expectations.
Speaking on the BBC’s Sunday With Laura Kuenssberg, Mr Hughes added that, in the long run, Brexit “reduces our overall output by around four percent compared to had we remained in the EU.”
“I’ve struggled to put it in any kind of sensible context. It’s a shock to the UK economy of the order of magnitude to other shocks that we’ve seen from the pandemic, from the energy crisis.”
The UK’s annual inflation rate unexpectedly jumped to 10.4 percent in February, up from 10.1 per cent the previous month.
Rishi Sunak has made slashing inflation a key pledge for 2023. Chancellor Jeremy Hunt said forecasts show it will fall to 2.9 percent by the end of the year.
Mr Hunt last week said he discusses the issue “regularly” with Bank governor Andrew Bailey, and that reducing inflation remained the Government’s focus.
He said: “It’s over 10 percent at the moment. That’s dangerously high, and we need to do everything we can to maintain our focus on bringing it down.”
“So I only ever say to him, please do what you think is necessary, as indeed you are legally bound to do under the Bank of England Act.”