Households will still feel the squeeze even if Budget boosts growth
Poorer households will not see their living standards recover to pre-2022 levels for another two years despite an anticipated acceleration in economic growth, new forecasts suggest.
The forecasts highlight the challenges in ensuring households across the country feel the benefit of any growth that the Labour government is able to stimulate.
The National Institute for Economic and Social Research (NIESR) predicted that growth would pick up to 1.5 per cent in 2025, an upgrade on its previous judgement of 1.2 per cent.
“This growth will be driven mainly by the fiscal expansion announced in the October Budget, which will start having a tangible effect during the course of 2025, coupled with continued growth in business investment,” the think tank said.
Stephen Millard, NIESR’s interim director, said the Budget boost to growth would be “temporary”.
He urged the government to press ahead with planning reforms and a sustained increase in public investment to improve the economy’s long-run growth rate.
And despite the expected growth boost, living standards for the bottom 40 per cent of households will not recover to pre-2022 levels before the end of 2027, economists at NIESR predicted.
Although real personal disposable income will rise 1.9 per cent this year and 1.0 per cent next year, this will not make up for the steep drop seen between 2022 and 2024.
The continued weakness in living standards reflects “small productivity increases” over the forecast period.
NIESR is relatively unusual in having upgraded its assessment of the economy given its dire performance in recent months.
Just last week the Bank of England halved its growth forecasts, anticipating growth of 0.7 per cent, down from a previous estimate of 1.5 per cent.
Bank officials noted that the economy has been more or less stagnant since March, while consumer and business confidence remain subdued.
The government has pledged to deliver higher living standards across every region of the country by the end of the parliament. It aims to secure the highest sustained growth rate in the G7.