Cost of living crisis 'is affecting everyone' says Mark Spencer

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A leading think tank sees the deepening cost-of-living crisis that plunging Britain into a recession, and urged government to support the most vulnerable. In its latest report, the National Institute of Economic and Social Research (Niesr) warned about the soaring inflation due to the pandemic that is driving prices up along with the impact of the war in Ukraine.

The forthcoming recession will see many families hit with food and energy bills greater than their disposable income, Niesr estimates.

The think tank predicted that more than 250,000 households are set to “slide into destitution” next year.

According to the Institute, the total number of people living in extreme poverty will hit around one million, unless urgent action is taken.

Moreover, the Niesr report forecasts that the UK will fall into a technical recession this year – as defined by two quarters in a row of declining gross domestic product (GDP) – with the economy set to contract in the third and fourth quarters.

As a response, Niesr said Chancellor Rishi Sunak should hike Universal Credit payments by £25 per week and give a one-off £250 cash payout to the UK’s 11.3 million lower-income households.

But Levelling Up Secretary Michael Gove has ruled out an emergency budget, insisting Boris Johnson’s suggestion of more help to ease the cost-of-living crisis was “over-interpreted”.

Niesr’s report predicts the Bank of England will have to raise interest rates to 2% by the end of 2022 and to 2.5% next year to try and curb soaring inflation.

It warned the Bank will have to “navigate carefully the treacherous waters caused by the tension between, on the one hand, allowing inflation expectations to de-anchor and, on the other hand, plunging the economy into a deep recession”.

The Niesr report comes after Bank governor Andrew Bailey last week raised the spectre of recession and warned inflation would peak at 10.25% later this year.

The bank forecast the UK economy would contract in the fourth quarter of 2022 and fall overall in 2023 with “very weak” quarterly growth, although it said Britain would avoid a technical recession.

Niesr’s forecasts suggest inflation will peak at the lower level of 8.3%, although it echoed the Bank’s alerts over a sizeable hit to household incomes and a rise in unemployment as the cost crunch hits hard.

It predicts GDP will rise by 3.5% overall in 2022 despite the recession forecast, before rising by 0.8% in 2023 and 0.9% in 2024.

Niesr said: “The medium-term outlook for GDP growth is slow even by the standards of recent history, returning to 1.5% only in 2026.

“The combination of shocks – Brexit, Covid-19 and the recent shocks to energy prices – is set to leave the incomes of people in the UK permanently lower.

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