Households face a “groundhog year” in 2023, as soaring gas bills and planned tax hikes squeeze disposable incomes and sink living standards for the second straight year.
Rising mortgage costs as fixed-rate loans come to an end and new deals are negotiated will add to the financial burden already felt by millions of households reeling from the worst decline in living standards in a century.
The Resolution Foundation predicts a fall in disposable income of 3.8% in 2023 – or £880 per household – after a fall of 3.3% in 2022.
Torsten Bell, chief executive of the independent think tank, said: “From a cost of living perspective, 2022 has been a truly awful year – far worse than any year of the pandemic or financial crisis. “
He said 2023 should see the back of double-digit inflation, “but it should be a groundhog year for many families whose incomes are expected to fall as much as 2022.”
Although inflation appears to have peaked, prices for essential items will continue to rise, pushing up bills that have in many cases doubled since last year.
Household energy expenditure will rise by a record £900 to an average of £2,450 in 2023, from £1,550 this year. Meanwhile income tax thresholds have been frozen by the Chancellor, Jeremy Hunt, meaning that as the average wage rises, the proportion handed over to the Treasury will also rise.
Mortgage payments will rise by £3,000 a year for around 2 million homeowners forced to refinance their loans in 2023. An increase in average rents will also affect millions of private tenants.
Bell said lower inflation over the next six months would improve the outlook for the economy and ease pressure on policymakers to tighten spending.
The Bank of England, which has raised the cost of borrowing nine times in the last year, is likely to ease its plans to raise interest rates further.
And families on the lowest incomes will have some protection against the cost of living crisis after the government raised the national level of living wages and benefits by around 10%.
However, Bell said: “It will be overwhelmed by falling wages, a record £900 rise in energy bills, tax bills for the typical household rising by £1,000 and millions of people seeing increases four figures off their mortgage bills.”
The think tank commissioned a YouGov poll of more than 10,000 people which found they are four times more likely to think their financial situation has gotten worse than improved over the past year.
A separate study by accounting firm PwC and credit app TotallyMoney found that 8.9 million adults were in serious financial hardship after saying they needed to use overdraft facilities to cover day-to-day expenses, such as the grocery store.
Record levels of unsecured debt and rising interest rates amid the cost-of-living crisis were the main reasons families were struggling and may struggle to keep pace with their mortgage repayments. loans in 2023.
The study estimated that unsecured debt, such as personal loans, now stands at more than £400billion, a record £16,200 for every UK household.
Isabelle Jenkins, Head of Financial Services at PwC UK, said: “Unaffordable lending and borrowing can cause real harm to individuals and society, and vulnerable consumers can be disproportionately affected.
A Treasury spokesman said the government was committed to supporting families with children, increasing benefits in line with inflation.
“We also have a plan that will help cut inflation by more than half next year, building on the financial pressures households are facing, and we have already enabled millions of people not to pay taxes by increasing non-taxable allowances for income tax. and national insurance more than inflation since 2010,” they added.