The UK faces its biggest drop in living standards on record as the cost-of-living crisis eats into people’s wages.
The government’s forecaster said that disposable household incomes – when adjusted for rising prices – would dive by 7% in the next few years.
Living standards will not recover to the levels they were last year until 2027-28, it added.
It came as the chancellor said the UK was already in recession and set to shrink further next year.
However, Jeremy Hunt said his Autumn Statement – which unveiled £55bn of tax rises and spending cuts – would lead to a “shallower downturn” with fewer jobs lost.
Energy and food bills have shot up due to the war in Ukraine and pandemic and are squeezing household budgets.
Inflation – the rate at which prices rise – is at a 41-year high and the Office for Budget Responsibility (OBR) warns it is dragging on the economy.
The forecaster said that overall, the UK economy was forecast to grow by 4.2% this year.
But the OBR said it would shrink by 1.4% next year, before rising by 1.3%, 2.6%, and 2.7% in the following three years.
A recession is defined as when a country’s economy shrinks for two three-month periods – or quarters – in a row.
Typically companies make less money, pay falls and unemployment rises. This means the government receives less money in tax to use on public services.
Delivering his Autumn Statement to Parliament, Jeremy Hunt said “families, pensioners, businesses, teachers, nurses and many others are worried about the future”.
But he said he was taking “difficult decisions” to tackle inflation and get the county’s large debt pile falling.