Economy sinks as inflation hits family finances

Living standards have been declining for a year as inflation erodes household budgets.

Real disposable income — the money households have to spend, factoring in the rising cost of living — fell 0.5 percent between July and September, according to the Office for National Statistics (ONS).

This was the fourth consecutive quarter that living standards fell, and means that Britain’s purchasing power has plummeted by 2.8% in a year, with further declines expected.

The ONS said the UK economy shrank by 0.3 percent in the third quarter of the year, worse than the 0.2 percent initially reported.

It will likely mean the UK slips into a recession, defined as two consecutive quarters of contraction, as the wallet tightens.

British production is 0.8 percent lower than when the pandemic hit.

And separate data from the ONS found that 61 percent of households in the most deprived areas bought less food compared to last year, compared to 44 percent in the more affluent areas.

Chancellor Jeremy Hunt said that ‘lowering prices so that people’s wages continue to rise is my top priority’.

He added: “High inflation, caused by Putin’s invasion of Ukraine, is slowing economic growth around the world. No country is immune, least of all Britain.’

Meanwhile, accountant PwC predicted real wages would fall to 2006 levels, meaning French workers would overtake British counterparts as the fourth highest paid workers in the G7 country group.

Inflation, which reached a 41-year high of 11.1 percent in October, has eroded purchasing power.

Wage growth has paled in comparison to the rise in prices due to supply chain chaos and skyrocketing energy bills.

PwC thinks the average weekly grocery shop will cost £100 next year, double the cost of 2000. The UK is now expected to slip into recession.