Workers will suffer a real-terms fall of £2,000 in the value of their wages by the end of this year and energy prices could hit nearly £7,000 in 2023 without government intervention, PwC has warned.
In its latest economic outlook, the Big Four professional services group has predicted that the economy will tip into recession this year as people face a double hit to their incomes from higher inflation and rapidly rising energy bills.
“Businesses and consumers could face two ominous milestones in the months ahead — a potential five-decade high in the inflation rate and the largest fall in real wages since records began,” Nick Forrest, UK economics consulting lead at PwC, said.
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The figures add further pressure on Liz Truss to provide support for households and businesses, amid reports that the government is considering capping energy bills at a cost of about £90 billion. “The path of natural gas prices and degree of government support will influence the potential size and scale of a downturn,” Forrest said.
Figures from Nationwide suggest households are £249 poorer than they were a year ago and in a poll by the building society a majority of consumers said they would cut back their costs as much as they could before energy bills triple this October. Nationwide said 12 per cent of struggling households “are avoiding seeking any additional support and are relying on their situation naturally improving, with younger people nearly five times more likely to avoid seeking help”.
Britons are in line to suffer falling real incomes for the next two years, a record drop in living standards and the worst recorded since the end of the Second World War. High inflation, which is in double-digits and could peak near 17 per cent next spring, is driving up the cost of living.
A government cap on energy bills is likely to lead to a sizeable reduction in headline inflation. Analysts at Capital Economics said a cap would mean inflation peaks at 11 per cent in October, lower than the 13 per cent predicted by the Bank of England.
“The economy is still likely to enter recession, but the peak-to-trough fall in real GDP may be more like 0.5 per cent than our current forecast of 1 per cent,” Neil Shearing, the consultancy’s group chief economist, said.
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Workers ‘face real-terms wage cut’ without government help