Real incomes for poorest families will not return to pre-COVID level ‘until end of 2026’
The poorest half of UK families will have to wait until the end of 2026 for their real incomes to return to pre-COVID levels, according to independent analysis.
The National Institute of Economic and Social Research (NIESR) said low to middle income households face seven years of falling living standards due to the fallout from the pandemic and, latterly, the continuing cost of living crisis.
Lockdowns and restrictions on earnings, followed by price hikes and Bank of England interest rate hikes since December 2021 to help tame inflation, have meant wages have mostly struggled to keep pace with price growth and rising borrowing costs alike.
The rate of Inflation peaked last year above 11% but it currently stands at 6.7%.
The annual pace of price increases is forecast to have fallen dramatically last month.
That is mostly due to the worst impact to energy bills from Russia’s invasion of Ukraine, falling out of the calculations.
Nevertheless, the NIESR said that real incomes, which take account of inflation, in the bottom half of the income distribution, will be around 5% lower in the 2023/24 financial year compared with the year ending March 2020.
That is despite average wage rises of around 7% in the current year, a figure that is expected to remain around the same level next year.
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‘Most households are just one pay cheque away from being homeless’
Professor Adrian Pabst, deputy director for policy at the NIESR, said: “Higher real wages this year are a welcome boost, especially for low-income working families who have been hit hardest by the COVID and inflation shocks.
“But a return to pre-pandemic living standards will require sustained real wage growth, including further increases in the National Living Wage.”
The NIESR’s latest quarterly forecast report said that if living standards were to rise, and help boost the country’s “anaemic” economic growth, public investment must be the focus of the looming autumn statement.
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The ‘fiscal bind’ facing Jeremy Hunt
Chancellor Jeremy Hunt has ruled out pre-election tax giveaways and also signalled a focus on bringing down debt.
A lack of new spending or tax cuts, while tough for many Tory MPs who are worried about their seats, will aid the government’s target to halve inflation this year.
The NIESR believed that the Bank of England would not have to impose further interest rate hikes beyond the 14 consecutive increases already seen, given that inflation was expected to continue to ease sharply.
Its report warned that while rising borrowing costs, which have exacerbated the shocks to household bills, may have peaked, there was no prospect of Bank rate returning to its COVID-era level of 0.1%.
It saw the interest rate settling at levels closer to 3-3.5%, with the first declines expected later next year.
Business
Energy bills to rise again from January but spring falls to come, research firm Cornwall Insight forecasts
Energy bills are to rise again next year, according to a respected forecaster.
Costs from January to March are projected to rise another 1% to £1,736 a year for the average user, according to research firm Cornwall Insight.
The energy price cap, which sets a limit on how much companies can charge per unit of electricity, is also expected to rise, costing typical households an extra £19 a year.
It’s a further increase after energy costs rose 10% from October.
After the latest hike, there were hopes of a fall in the new year, but volatile wholesale gas and electricity markets are still above historic average costs.
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Prices have gone up due to supply concerns arising from Russia‘s war in Ukraine, and maintenance of Norwegian gas infrastructure.
But spring is expected to herald a reduction as is October 2025, Cornwall Insight said.
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‘Energy prices make me depressed’, pensioner Roy Roots said in August
Every three months energy regulator Ofgem revises the cap based on wholesale costs.
The official January price cap announcement will be made on Friday.
It comes as millions of pensioners lost their automatic winter fuel allowance payment after the government means-tested the benefit.
Meanwhile, Cornwall Insight’s principal consultant Dr Craig Lowrey warned “millions” of households won’t heat their homes to “recommended temperatures, risking serious health consequences” with bills on the rise.
“With it being widely accepted that high prices are here to stay, we need to see action,” he said, suggesting options like cheaper rates for low-income homes, benefit restructuring, or other targeted support for the vulnerable “must be seriously considered”.
The energy price cap system is being reviewed by Ofgem with possible changes to the standing charge coming over the next year.
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The long-lasting solution to high energy bills is the transition to UK-produced renewable power, the firm said.
“While there will be upfront costs, this shift is essential to building a sustainable and secure energy system for the future.”
The owners of Scotland’s only oil refinery have rejected a US-led approach about a possible bid for it months before its scheduled closure.
Sky News has learnt that a consortium said to be led by Robert McKee, an American energy industry veteran, wrote to Petroineos, the owner of the Grangemouth site, to express an interest in buying it.
The approach, which is understood to have been made earlier this month, was rejected by Petroineos, which is 50%-owned by the petrochemicals empire founded by the Manchester United FC shareholder Sir Jim Ratcliffe.
The consortium is understood to comprise The Canal Group, which is reportedly developing a green energy refinery in Texas, and Trading Stack, a Middle East-based commodities trader.
Mr McKee spent nearly four decades with ConocoPhillips, one of the biggest energy companies in the US.
Sources close to the situation said that Petroineos had rebuffed the offer in order to concentrate on a publicly announced plan to transform the century-old plant into a finished fuels import terminal.
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They added that the nature of the consortium’s approach had raised questions about its access to financing and expertise in operating an asset of this kind.
The Grangemouth refinery, which employs about 450 people, loses about £200m annually.
Its other shareholder is the state-backed Chinese energy giant PetroChina.
The site is due to close next year.
A person close to the consortium insisted that its financing was robust and said it would assess the feasibility of building a new refinery elsewhere in the area.
They added that the consortium had had “positive interactions” with trade union officials, and believed that there was scope to rapidly make Grangemouth’s refinery operations profitable.
On Monday, a spokesman for Petroineos said: “Since the Petroineos joint venture was formed 13 years ago, our shareholders have invested nearly £1bn in the refinery, only to absorb losses of £600m.
“Last week, the refinery lost £385,000 on average each day and we expect to lose more than £150m in total during the course of this year.
“We have not received any credible or viable bids for the refinery.”
A spokesman for the consortium declined to comment.
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