Household incomes taking a big hit

We estimate that the leap in utility prices and hike in taxes on 1^st April will reduce real household disposable incomes over the next two years by a cumulative £80bn. The resulting 2.0% decline in real incomes in 2022 will be the largest on record. Even so, we expect that a surge in inflation from 5.4% in December to a peak of 7.5% in April and the risk that inflation expectations remain high will prompt the Bank of England to put aside its concerns over the weakening economic outlook and raise interest rates from the current 0.50% to a peak of 2.00% next year.