A FIFTH of Scots households will have their savings wiped out by the soaring cost of living by 2024, a new report warns.
The UK is set to enter a recession lasting for months and the threat of the economic nightmare of ‘stagflation’ - slow growth, high unemployment and rising prices - has returned for the first time since the 1970s.
The forecast from the National Institute of Economic and Social Research (NIESR) predicts that around 530,000 households in Scotland – 21% - will run out of savings by 2024.
A further 780,000 households north of the border – 28% - will be left without sufficient savings and more vulnerable to rising costs.
The report also notes that the gap between London and the rest of the United Kingdom is widening as the city continues to “power ahead” while other parts of the UK – including in Scotland – fall further behind.
“The Towns Fund of £4.8 billion and other Levelling Up funding streams need to be at least doubled to stimulate growth in the devolved nations and English regions outside London and the South-East and unlock greater private investment,” it adds.
The NIESR has called for the new Tory Prime Minister to take action to help financially vulnerable households, including a £25 uplift per week to Universal Credit for at least six months and increasing the energy grant.
Between the impact of inflation and the refusal of the UK Government to raise benefits in line with inflation, it says the 10% poorest households will be around 5% worse off, making them the worst hit of any income group in society.
Professor Adrian Pabst, NIESR’s Deputy Director for Public Policy, said: “All households are facing soaring energy and food bills but too many have to resort to credit, build up payment arrears or see their savings wiped out.
“The incoming administration needs to provide immediate emergency support to the 1.2 million hardest hit households and the one-five households that will become financially vulnerable as the energy price cap is lifted and the recession begins to bite.”
The report says the cost-of-living crisis will have “persistent effects” upon the hardest hit households.
Soaring bills for basic necessities mean that the number of households living pay cheque to pay cheque is predicted to nearly double from around 3.9 million in the UK – 14% - in 2023 to approximately 6.8 million – 26% - by 2024.
“We expect the UK economy to enter a recession in this quarter, remaining there until the first quarter of 2023,” said the NIESR.
“The recession, combined with rising prices and falling real incomes, will hit millions of vulnerable households who are concentrated in some of the most economically and socially deprived areas of the country.”
The report warns of a “relatively shallow” recession, but says there is an “increased possibility of a deeper consumer price index inflation will reach close to 11%, but will fall back to 3% by the end of 2023.
Professor Stephen Millard, NIESR deputy director for macroeconomics, said: “The UK economy is heading into a period of stagflation with high inflation and a recession hitting the economy simultaneously.”
He called on the Bank of England to try to get inflation under control, with interest rates of 3% likely to be necessary.
The report forecast that real incomes will be permanently lower, dropping 2.5% in 2022 alone.
Real incomes will be 7% below where they were headed before Covid by 2026, it said, with around 3% to 5% of this hit will come from Brexit, 1% to 3% from energy price rises and the remainder from UK Government policy.
