Living standards in the UK have finally made up the ground lost as a result of the financial crash following the boost to incomes provided by rising employment and falling inflation, according to the Resolution Foundation.
The thinktank said that the longest squeeze on households in living memory had finally come to an end, with incomes surpassing their previous 2009 peak.
But it warned that the pace of recovery was likely to slow during the course of the current parliament and that low-income families were particularly vulnerable to changes to the benefits system.
“The financial crash led to one of the longest and deepest squeezes on household incomes in living memory. But the welcome recent backdrop of strong employment growth and ultra low inflation has meant that typical household incomes have finally surpassed their previous peak.”
Real incomes came under severe pressure during and after Britain’s most severe post-war economic downturn, with weak growth, low-wage settlements and high inflation making individuals worse off.
But the Resolution Foundation said that in recent years a broad-based recovery had led to the average income adjusted for inflation rising to £24,300 – its highest ever level.
The report – Living Standards 2016 – found that some regions had fared better than others during the period from 2008 to 2015 covering the recession and its aftermath. Typical household income growth had been strongest in Scotland (4%), while incomes in Northern Ireland (-2.4%), the West Midlands (-1.9 %) and Eastern England (-0.8%) were still below pre-crash levels.
The thinktank said there had also been a contrast between pensioner and working-age households. Typical pensioner household incomes had risen steadily in the wake of the crash, while working-age household incomes fell. This continued a trend that predated the crash in which pensioner incomes had risen 10 times faster than working-age ones since 2002.
It predicted that rising inflation, significant reductions in welfare and an uncertain outlook for pay could lead to a slowdown in household income growth, with living standards for typical households rising by an average of just 1% a year over the parliament.
“It’s particularly encouraging to see that the recent recovery has been broadly shared, with low-income households receiving the strongest living standards boost of all,” said Matthew Whittaker, the Resolution Foundation’s chief economist.
“But there are huge uncertainties surrounding the future path of living standards. The pace of recovery is likely to slow over the remainder of the parliament. Substantial benefit cuts will bear down most heavily on poorer households, with many seeing their incomes fall as a result.”
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