Household disposable income will plummet a staggering 7.1% in real terms over this year and next year - the biggest drop since records began in 1956, a watchdog warned.
The grim conclusion was drawn by the Office for Budget Responsibility (OBR) after Chancellor Jeremy Hunt outlined billions of pounds of stealth taxes and cuts.
The watchdog said disposable income will still be below pre-pandemic levels by 2028.
It comes as charities warn struggling Brits face a "frightening obstacle course just to afford the essentials".
The OBR has confirmed that the UK has gone into a recession which it predicts will last "just over a year" - during which time more than half a million people will lose their jobs.
Unemployment will hit 4.9% by mid-2024, the watchdog has predicted, up from 3.5%.
In its report the OBR said: "The UK is being hit by a large terms of trade shock that is set to push inflation to its highest rate in 40 years and drive historic falls in real household disposable income.
"This inevitably makes households worse off."
It said that this the highest fall in living standards since the Office for National Statistics (ONS) began in 1956-57.
The watchdog said it was only the third time that disposable income had fallen for two consecutive fiscal years - the last occasion being in the aftermath of the 2008 global crisis.
Today Mr Hunt said that his plans would ensure the recession was "shallower", and said around 70,000 jobs would be protected.
In measures outlined today, the Chancellor said that benefits and state pensions will go up by 10.1% in line with inflation.
Rebecca McDonald, chief economist for the Joseph Rowntree Foundation warned that despite this support, families are facing the "worst winter many will remember".
She said: "Even with uprating, rates are at historic lows and households facing difficult times are increasingly not able to cover the essentials.
“Through the course of this year we have seen an increase in the number of families who are falling behind with their bills, unable to afford hot meals and going without the essentials they need. The use of one-off payments to help with the cost of living may mitigate some of the looming disaster, but those who narrowly don’t qualify will be hit hard.
“This winter and beyond is still going to be a frightening obstacle course just to afford the essentials."
TUC General Secretary Frances O’Grady said: “We are all paying the price for the last decade of Tory governments, which decimated growth and living standards. Today’s statement shows it will be two decades until real wages recover.
“Millions of key workers across the public sector – who got us through the pandemic – face years of pay misery as departmental budgets are brutally squeezed."
The Chancellor has kept current spending plans until April 2025. But he will unleash cuts of £11.6bn in 2025/26, £23.2bn in 2026/27, and £36.3bn in 2027/28, compared to previous plans.
He will do this by raising revenue spending in real terms only by 1% beyond 2025, and cutting capital spending - on big infrastructure projects - in real terms by freezing it at the 2025 rate.
