A new report reveals typical UK households are likely to be £1,000 worse off in 2022-2023, in what is being described as a ‘deep recession’. The report also reveals that inflation could go as high as 8% during the next financial year, placing further pressure on our finances.
So if you’re struggling with the cost of living crisis, here are some tips to help you lessen the impact on your wallet.
Households facing a ‘deep recession’: what did the report say?
According to the Resolution Foundation, the UK’s economy has recovered more quickly from the pandemic than expected. Despite this, many households are now facing a ‘deep recession’ due to the current cost of living crisis – which is being made worse by current events in Ukraine.
In its latest ‘Living Standards Outlook’ report, the foundation suggests that household incomes are likely to be £1,000 lower in real terms in 2022-2023 if the inflation rate hits 7.6%. It also warns that such a significant drop in incomes would usually be associated with financial crises, such as those seen in the mid-1970s and early 1980s.
The report also suggests that real incomes are estimated to be even lower in future. It’s expected that by 2023-24 incomes may fall by as much as 2%, with the foundation blaming ‘weak pay forecasts’.
Its report also outlines that the current parliamentary period, which began in 2019, is ‘on track’ to be the worst parliament on record in terms of income growth. The foundation supports this by highlighting how real incomes are set to be lower in 2026. That’s before taking into account any economic impact from the war in Ukraine.
What else did the report reveal?
Aside from highlighting how real incomes are expected to fall in the near future, the Resolution Foundation also revealed that poverty and overall inequality has increased in 2021-22 due to ‘benefit boosts’ being withdrawn. The £20 Universal Credit uplift, brought in to support families during the pandemic ended in October last year.
Worryingly, the foundation also expects child poverty to increase further in 2022-23, given the trajectory of the cost of living crisis.
What steps can households take to tackle to cost of living crisis?
Next month, the cost of both energy and National Insurance will increase.
The new energy price cap will officially add £700 to the average household’s annual energy bill. However, it’s very likely prices will go even higher when Ofgem reviews its cap again in August. Some recent reports suggest that average energy costs could soon hit £3,000 per year.
As for National Insurance, workers will soon pay higher contributions following the government’s decision to hike the tax by 1.5%. The change means an employee earning £30,000 will have to pay an extra £214 a year.
These increased costs are largely unavoidable and come at a time of huge economic uncertainly. Despite this, here are some tips you can follow to help with the cost of living crisis.
1. Ensure you’re getting a good deal on your car insurance
If you’re a motorist, car insurance is a legal necessity. Yet costs can vary massively across providers. As a rule of thumb, never just stick with your current provider at the time of renewal. Instead, compare polices by using a car insurance comparison website to ensure you get the best possible deal.
2. Check home insurance costs
If you have home insurance, then it’s worth comparing providers to see if you can find a cheaper deal. In other words, don’t fall victim to personal apathy. Take a look at The Motley Fool’s list of the top-rated home insurance providers.
3. Get a decent interest rate on your savings
Savings rates are on the up. So, if you have cash sitting in an account that pays a pitiful interest rate, it’s worth taking action. Right now, you can earn 0.82% in an easy access account or up to 2.2% in a fixed account. See our list of top-rated savings accounts of 2022 for your options.
4. Learn how to create a budget
From setting financial goals to setting yourself spending limits, creating a budget can really give your wallet a boost. For more details, take a look at our article that explains how to budget your money wisely.
For more money-saving tips, take a look at The Motley Fool’s latest personal finance articles.