Middle-income households will be worse off next year due to the rising cost of living and tax increases, an independent think tank has said.
The Institute for Fiscal Studies said the Budget spelled a “worrying outlook for living standards”, warning that rising inflation rates and higher taxes would cancel out any increase in wages.
It comes after the Government’s economic forecaster warned that the cost of living could rise at its fastest rate for 30 years.
The Office for Budget Responsibility (OBR) said that inflation could reach almost 5 per cent.
High inflation means that the cost of living goes up, as the prices of goods such as food and energy increase.
Food prices are rising more quickly than expected, according to the British Retail Consortium.
Britons were forced to pay nearly £6 more on their shopping over the past month than during the same period in 2020 because of rising inflation, analysis suggested.
According to market insights firm Kantar, grocery prices rose by 1.7 per cent during the past four weeks compared to 2020, leaving the average shopper paying an extra £5.94.
“The typical household spends £4,726 per year in the supermarkets, so any future price rises will quickly add up,” Kantar said.
This is largely due to worker and HGV driver shortages, rising energy costs and additional costs from Brexit, all of which make goods more expensive to produce and distribute to supermarkets. This in turn can cause price hikes.
In August, wholesalers warned that the cost of basics such as cooking oil and vegetables had soared.
Alongside this, there have been shortages of some products in supermarkets and food outlets due to supply chain problems.
Brexit has also worsened these challenges, with delays at ports leading to delays in deliveries.
The shortages of HGV drivers have seen international shipping costs increase up to tenfold, meaning that the price of many goods imported from overseas has risen.
Wholesale gas prices have more than quadrupled this year, rising by more than 70 per cent since August alone. This means fuel bills are on the rise.
The soaring prices have also forced some smaller energy firms into collapse, including Avro, Green, Igloo, Utility Point, People’s Energy, PfP Energy and MoneyPlus Energy, meaning that some customers may have to change energy providers.
This is largely a supply and demand issue; as the economy rebounds from the pandemic, the demand for energy is going up, but supply is currently low.
In part, poor supply comes from a cold winter in Europe which left stocks in Europe unusually low, while Russian pipeline gas supplies have also been lower than expected. Asia also suffered a cold winter, so has been competing to import liquefied natural gas.
The energy price cap has been increased, which the OBR said has contributed to raising the cost of living.