War in Middle East ‘could wipe out growth in UK living standards’ | Resolution Foundation
Conflict in the Middle East could trigger an energy price shock that would wipe out £300 of expected growth in living standards in Britain next year for the typical working-age household, a leading think tank has warned.
The Resolution Foundation said a “reasonable” one-off increase in average living standards this year and a large increase in low-income households could be reversed by rising oil and gas prices as the conflict in Iran disrupts supplies.
Britain’s dependence on gas from the Middle East makes it particularly vulnerable to an effective blockade of the Strait of Hormuz, through which around 20% of the world’s liquid natural gas is carried.
Living standards for typical working-age households are on track to rise by £300 next year, according to calculations by the think tank in its spring forecast analysis on Tuesday.
A larger increase in living standards for low-income households is expected, up 3.9% to £800. This is mainly due to the removal of the two-child benefit cap and an above-inflation increase in universal credit. This year will be the second strongest year in the last two decades for poorer households’ living standards.
However, the foundation said that all gains could be erased if the recent increase in energy prices continues.
While the impact is not as large as that caused by Russia’s invasion of Ukraine, which caused food, oil and gas prices to soar, a rise in oil and gas prices this year could add a percentage point to UK inflation and £500 to typical annual energy bills, it said.
Ruth Curtice, chief executive of the Resolution Foundation, said: “The immediate economic outlook for the UK is extremely uncertain, yesterday’s forecasts already look out of date and the living standards picture for the rest of the parliament is highly uneven.
“Next year will be good for living standards and good for poor families, as wages and welfare support rise above inflation levels. But a new energy price shock risks spoiling this good news.”
The Joseph Rowntree Foundation said the situation could be even worse, arguing that the government’s projected rises in average living standards were ignoring pressures from housing costs.
“Our modeling reveals that average annual household disposable income is forecast to increase by just £40 over the course of the current parliament (April 2024 to April 2029) after adjusting for inflation,” he said.
The charity said forecasts on key economic indicators such as the consumer price index measure of inflation and average weekly earnings from the Office for Budget Responsibility, the Treasury’s independent forecaster, were fed into the Public Policy Research Institute’s tax benefit model, which uses the family resources survey to forecast household incomes for each year up to the end of parliament.
IPPR, a left-leaning think tank, uses the Office for National Statistics’ family resources survey to get a more accurate picture of living standards, especially for those in the bottom half of the income scale.
