3% fall in real household disposable incomes in 2022

This three percent fall is the biggest drop in living standards since comparable records began in the 1950s. And while drops in living standards usually occur due to slow growth, high inflation, or a combination of the two - most forecasters still expect the UK economy to exhibit growth in each quarter of 2022. 

However, the energy price crisis means households will be notably worse off as income won’t be able to keep up with inflation. As a result of this, the traditional causality might reverse and the fall in living standards could be a contributing factor to weaker growth.

Off the back of this, consumer spending will weaken over the coming months due to households cutting back on discretionary expenditures. These drops come at a time when many businesses are in desperate need of a good season following two difficult years that have drained financial reserves. 

The impact of this is already being seen with the fourth quarter of 2021 recording the highest number of insolvencies in nearly eight years, with the data showing a similar picture for January and February this year. 

A continuation of this trend, according to the CEBR, could spell the end of the labour market that has resulted in unemployment trending down over the past year. This has been made more likely by the fact that many of those who have left the labour force since the start of the pandemic might see themselves forced to go back to work to pay for higher bills. 

There are now more than 689,000 people economically inactive than in the three months to February 2020 - with 40% of that accounted for by 50-to-64-year-olds. Even if a third of those people rejoin the workforce over the coming months this would spell a significant expansion of labour supply. 

However, it could come at a time when hiring intentions are already weakening. Even accounting for some moderate employment growth over the coming quarters, the additional labour supply would mean that the unemployment rate could rise to 4.6% by the fourth quarter of 2022 - up from its current level of 3.9%.