Households in Britain will suffer a hit to their finances of up to £4,000 this year, according to a report warning that the economy could avoid recession but that, for millions, it will not feel like it has. Adding to pressure on Rishi Sunak as the government prepares to scale back its support for energy bills this spring, the National Institute for Economic and Social Research (NIESR) said low and middle-income households were facing the biggest financial hit from the cost of living crisis. In its latest quarterly health check on the economy, it said Britain was likely to sidestep a protracted recession this year, but that growth would remain close to zero as the impact of high inflation and rising borrowing costs weigh on the economy. “With the cost of living crisis having a lasting effect on households, for at least 7m, it will certainly feel like a recession,”the report said. With high energy bills and the rising cost of a weekly shop, at least 7m households – about a quarter of the population – will be unable to meet in full their planned energy and food bills from their post-tax incomes, the report added. Highlighting a return of a “squeezed middle” as high inflation erodes consumer spending power, it said an average middle-income household would face a hit to their personal disposable income of 13%, reaching up to £4,000 in the next financial year. The figures come after the International Monetary Fund warned Britain was to become the only major industrialised country with a shrinking economy this year, with growth dragged down by high inflation, rising taxes and higher interest rates from the Bank of England. NIESR said that while a recession could be avoided, growth would however still remain “anaemic” at best as high inflation and rising interest rates took effect, with the economy forecast to expand by just 0.2% this year. Urging the government to rethink its plans for economic growth, the thinktank – which is Britain’s oldest independent research institute – said steps to raise public sector investment were required to boost the economy’s growth potential. It also called for the introduction of a “social tariff” and a variable price cap to address future high energy bills – which would lower gas and electricity bills for poorer households who use less energy, while incentivising efficient energy consumption for the more affluent, who typically use more. Jagjit Chadha, the director of NIESR, said the changes were required after a series of economic shocks since the 2008 financial crisis – including the fallout from the Brexit referendum, Covid pandemic, and energy crisis – had made households poorer and stoked inequality. “What we’ve seen is the shocks that have come along have progressively made us poorer per person. We can talk about the average growth rate of the economy, but that masks household and regional inequalities. “We can point to areas where income per head has grown, but on average it’s low. And that low average also means many households have had deteriorating standards of living over time. That’s the key frustration the UK economy is facing.”