Households to Remain Worse Off than Pre-Covid until 2023, says Watchdog.
Households will remain worse off than they were before the pandemic until 2023, the UK’s independent forecaster has warned.
Charlie Bean, an Office for Budget Responsibility (OBR) committee member, told MPs that incomes would not return to 2019 levels for another two years. He said the main reason was “a very low rate of productivity growth”.
The pandemic effectively froze large parts of the economy, with many businesses shut entirely.
Mr Bean said: “We don’t have real household disposable income getting above pre-pandemic levels until the back end of 2023, and it’s growing at a pretty mediocre rate from then on.”
He was asked at a Treasury Committee hearing about the weak rise in real household disposable incomes since the financial crisis, with incomes forecast to have grown by just 2.4% between 2008 and 2024 compared with an increase of 36% in the 16 years before the crisis.
“We do have a modest pickup in productivity growth [in our forecast]. But it’s not back up to anything like the pre-epidemic rates,” he said.
The forecast has similarities to one from the Institute for Fiscal Studies last week, delivered in response to the Budget.
That also predicted a poor near-term outlook for personal finances, saying it expected weak inflation and higher taxes would negate many wage rises.
It also said low-income households would also feel “real pain” as the cost of living was set to increase faster than benefit payments.
Meanwhile, the OBR’s chairman, Richard Hughes, told MPs on the committee Rishi Sunak could struggle to meet his targets of both reducing debt and balancing the current budget deficit in three years. He said: “The chancellor set himself some new fiscal rules in this budget and they are to get debt falling as a share of GDP (gross domestic product) by 2024/25 and balance the current budget.
“The headroom he set aside to reach those targets is the second-lowest headroom that any chancellor has had when setting fiscal rules.” He said there was very little room for error: “Just a 1% interest rate rise could easily wipe out the chancellor’s headroom.”
The Bank of England’s Monetary Policy Committee (MPC) is meeting on Thursday to decide whether to raise the interest rate from a historic low of 0.1%.