THE cost of living crisis is set to give way to a “grey gloom” ahead of the next General Election with voters seeing little improvement in their living standards, economists have said.
The Financial Times polled 90 leading UK-based economists on their predictions for 2024, with experts suggesting that both renters and homeowners renewing fixed rate mortgages are set for “rough justice” in the months to come.
One described the UK as in an “economic rut” that was making everyone poorer, and prices will remain far higher than before the inflationary surge.
Andrew Oswald, professor at Warwick University, said an expected boost to wages in 2024 will feel like swapping “black gloom” for “grey gloom”.
Those on low pay will benefit from a rise in the minimum wage while pensioners will enjoy good savings rates, but renters and homeowners are facing much higher costs.
“The broadly felt cost of living squeeze of the last 18 months will give way to a backdrop in which some households enjoy a recovery . . . while others struggle,” said Matt Whittaker, chief executive of Pro Bono Economics, told the FT.
Almost all respondents told the newspaper that growth will stagnate in 2024.
Economists previously warned that even if Sunak (below) delayed the next Westminster election until the latest possible date of January 2025, there would not be enough time to repair the damage to living standards sustained in recent years.
Michael Saunders, of consultancy firm Oxford Economists, said: “Real wages will be rising, but so will unemployment, the tax burden, rents and the average interest rate on the stock of mortgages.
“I do not expect a feelgood factor in the run-up to the election.”
Charlie Bean, former chief economist at the Bank of England (BoE), said that living standards for most in the UK will have “stagnated over the lifetime of the Parliament”.
And, despite the issue of inflation largely being left behind in 2023, people will still feel worse off until they see an improvement in disposable income, argued Bronwyn Curtis, of the Office for Budget Responsibility’s (OBR) Oversight Board.
“This is not going to happen between now and an election,” he added.
It comes as benefit claimants are set to lose state support for energy bills in March, and survey respondents said they expected unemployment to rise from 4.2% to between 4.5% and 5% by the end of 2024.
The cut to national insurance will help some employees, but frozen income tax thresholds mean that the tax burden is still set to rise overall.
Alfie Stirling, chief economist at the Joseph Rowntree Foundation, warned that for those in less secure industries, the “worst may be still to come” as higher interest rates mean companies could cut jobs.
Some economists argued that higher public investment would be the solution to the UK’s growth issue, but most saw little prospect of a revival without a big policy reset.
Diane Coyle, professor of public policy at Cambridge University, said: “The issue isn’t just incomes and inflation, but that people’s experience day to day is getting worse as public services crumble.
“The bill for sustained under-investment in everything from infrastructure, health and education to private business is coming due.”
Meanwhile, Lydia Prieg, head of economics at the New Economics Foundation, said that the UK was in an “economic rut” and that “we are all poorer because of it”.
