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Bleak outlook for household incomes

The impact of public spending cuts and tax rises on UK household incomes will be felt for up to 10 years, an economic study has warned, as the worst effects of the recession are yet to be felt.

The UK Government was able to cushion the blow of recession through "unusually generous" increases in financial support, independent economic researcher the Institute for Fiscal Studies (IFS) said.

But as the UK Treasury unfolds its deficit-busting package of austerity measures - including £80 billion of spending cuts - household incomes will increasingly suffer, the IFS warned.

The study, included in a wider London School of Economics report, was published shortly after Chancellor George Osborne once again defended his fiscal policy in the face of damning economic surveys which suggest the UK is heading for a double-dip recession.

Robert Joyce, a research economist at IFS and contributor to the report, said: "The current economic downturn began more than three years ago, and may seem like old news.

"But, as in other developed countries, the most severe consequences of the recession on UK living standards have only just begun to be felt, and will continue to be felt for years to come."

UK household incomes actually continued to grow slightly after the 2007 financial crisis and through the 2008 to 2009 recession, but in the most recent financial year, earnings, state benefits and tax credits all fell in real terms, the IFS said.

A 3.5% fall in median net household income in the year to April, the largest drop since 1981, is estimated by the IFS, showing that much of the impact of the recession was delayed.

The Chancellor's deficit reduction plans have been challenged by business leaders, economists and opposition politicians in recent months as the economic outlook for the UK deteriorates.

But speaking alongside Christine Lagarde, head of the International Monetary Fund, Mr Osborne insisted the austerity measures laid out last October in his Comprehensive Spending Review must continue, adding: "It is the rock of stability on which our economy is built."