Incomes set to rise again next year – here’s why

Low and middle income households face three years of stagnating living standards lasting until 2020, according to the Resolution Foundation’s annual living standards report.

The think tank reports that high inflation following the referendum has caused the return of falling real pay and deepened cuts to working age benefits, meaning typical household incomes are projected to have fallen marginally this financial year (2017-18).

It says this would make it the worst year for income growth since 2011-12, and the third worst in the last 25 years.

But with inflationary pressures easing and some signs of pay growth rising, the Foundation forecasts that median incomes will start to rise again in the next financial year (2018-19) and the remainder of the parliament.

However, the pace of growth could be sluggish, peaking at 1.3 per cent a year by the end of the parliament – well below the 2.1 per cent average rate of income growth households enjoyed before the financial crisis.

-Neil Woodford: Out to prove the doubters wrong

The Foundation also warns that Britain’s eight million working age families on low and middle incomes risk missing out on any growth in the coming years, with three years of flat or falling living standards predicted between 2017-18 and 2019-20. This would mean an income rise of just £300 (or 2 per cent) over the decade to 2020, according to the report.

Adam Corlett, senior economist analyst at the Resolution Foundation, comments: “2017 was a disastrous year for living standards as high inflation caused pay packets to shrink and made the cash freeze in working age benefits bite harder. The good news is that living standards are set to start rising again next year.

“The disappointing news is that the recovery is set to be slow. And the really worrying news is that low and middle income households could miss out altogether, with three years of stagnating incomes running right through to 2020.

This article was originally written by our sister publication Moneywise.

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