The war in the Middle East is threatening to ruin the increase in living standards in Britain.
Resolution Foundation, an independent think tank 'dedicated to lifting living standards in the UK', says that the living standards of lower-income households are set to grow by 3.9 percent, or £800, this year.
"The rise is driven by the abolition of the two-child limit and the first ever permanent above-inflation increase in the basic rate of Universal Credit," the Foundation says.
"This would be the second strongest year for living standards in the past two decades for poorer families."
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While living standards for working class families are also set to grow by 0.9 percent, or £300, it seems the conflict between Iran, the US and Israel could jeopardise that in the short-term due to the rise in price of oil and gas.
If the conflict continues, this could lead to an increase in inflation, interest rates and debt interest, resulting in an extra £500 on top of typical annual energy bills.
"The immediate economic outlook for Britain is highly uncertain, with yesterday’s forecasts already looking out of date, while the living standards picture for the rest of the Parliament is very lopsided," Ruth Curtice, Chief Executive at the Resolution Foundation, said.
"This coming year is set to be a decent one for living standards, and a bumper one for poorer families, as wages and benefit support rise above the level of inflation.
Curtice warned that 'a fresh energy price shock' could ruin 'this good news'.
"With wage growth set to tail off, the living standards picture for the rest of the Parliament is bleak," she added.
"This should remind policy makers of the need to both navigate near-term uncertainty and support productivity-based economic growth over the medium term.
"That is the only way to meaningfully lift living standards throughout Britain."
For next year, The Foundation has projected that 'the incomes of typical working-age families are projected to fall by 0.5 per cent, or £150, for the remaining two years of the Parliament (2026-27 to 2028-29)'.
"This bleak outlook for living standards is driven by the OBR’s pessimistic forecast for wages, which are set to grow by just 1.4 per cent over the next three years (Q4 2025 to Q4 2028) in real terms.
"The Foundation’s forecast for child poverty follows a similar pattern.
"A significant fall in 2026-27 of three percentage points, or 480,000 children, is followed by a steady rise over the next three years.
"Over the Parliament as a whole (2024-25 to 2029-30) child poverty is set to fall marginally by 0.5 percentage points."
Anish Vij