The National Institute of Economic and Social Research said gas price rises and the escalating cost of food would send inflation to 11% before the end of the year while the retail prices index (RPI), which is used to set rail fares and student loans repayments, is expected to hit 17.7%.
It also forecast a long recession that would last into next year and hit millions of the most vulnerable households, especially in the worst-off parts of the country.
NIESR said average incomes would fall by a record 2.5% this year, leaving millions of families to use savings or expensive credit to pay essential heating and food costs this winter. The thinktank said below inflation wage rises would become entrenched and by 2026 would mean that real incomes, after inflation is taken into account, would be 7% below the pre-Covid trend.
In its half-yearly economic health check, the thinktank said the number of households with no savings was set to double to 5.3 million by 2024. Families in the north-east, which rely heavily on public sector jobs, were the most likely to see their savings disappear after using them to pay for day-to-day bills.
Stephen Millard, the institute’s deputy director, said the economy would contract for three consecutive quarters, shrinking the 1% by the spring of next year. He added there will be “no respite” for British households and businesses from “astronomical inflation” in the short term and “we will need interest rates up at the 3% mark if we are to bring it down”.