Hundreds of thousands of middle-income families are set to be forced to cut back on essentials as the cost of living crisis escalates, a think tank has warned.
The New Economics Foundation (NEF) said their analysis showed the cost of essentials for the average UK family is expected to rise by £2,300 this year – and 23.5 million people will be unable to afford this increase.
This includes 2.2 million people who had previously been able to afford the essentials, made up of households on middle incomes of up £33,000 a year before tax.
The NEF said their analysis showed the increases would be felt particularly hard by the poor, ethnic minorities and women.
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The think tank criticised the government for their response to the crisis, saying current policies such as the fuel duty cut and increase to the national insurance threshold are poorly targeted.
These policies in particular will leave the richest 5% of families £600 better off each year, whereas the poorest half of households will only see an average increase of £300, the analysis found.
The NEF has called for the creation of a new social security system, or 'living income’, which would impose a minimum level of income under which no-one can fall, whether they are working or not.
They also called for the return of the £20 universal credit uplift that was scrapped last year, a general funding increase in the benefits system and an uprate to benefits in line with the current level of inflation.
Watch: Bank of England predicts cost-of-living 'hardship'
Sam Tims, an economist at thenEF, said: "The worsening crisis makes clear that we urgently need a bold new way of doing income support to ensure households do not fall into deeper levels of destitution. Poverty limits people’s freedom restricts education and health outcomes and reinforces the imbalance in our economy.”
The latest analysis coincides with the dire warnings from the Bank of England (BoE) on Thursday.
They increased interest rates from 0.75% to 1% – taking them to the highest level since 2009 – and said they expect inflation to hit 10% and the economy to fall into recession by the end of this year.
In a grim set of forecasts, the BoE predicted growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.
The UK is set to narrowly miss a technical recession, as defined by two quarters in a row of falling gross domestic product (GDP), but the BoE forecasts very weak quarterly growth in 2023 and a contraction as a whole next year, with GDP falling by 0.25% and unemployment picking up sharply as cost pressures hit hard.
The Bank said household disposable income will plunge by 1.75% this year – the second-highest on record – while overall real income will tumble by an unprecedented 3.25% this year and fall again in 2023 before beginning to recover.
The BoE's announcement came as the UK went to the polls for local elections.
It is the first time voters have been given a chance to express their opinions on the government since Partygate and the cost of living crisis acceleration.