BRITAIN is on course for a "major slowdown” in living standards and the largest increase in inequality since the days of Margaret Thatcher, a new report warns today.

Research by the Resolution Foundation, which describes itself as a non-partisan think-tank, says that rising inflation in the wake of the Brexit vote and UK Government policies on tax and welfare mean families will see almost no growth in their incomes before the next General Election in 2020.

Labour branded the findings “damning” and decried the prospect that the rich were set to get richer while the poor got poorer.

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"It demonstrates to us all once again that the economy under a Tory government will be rigged for those at the top with poor and middle income households facing their worst parliament for income growth since the 1960s," declared John McDonnell, the Shadow Chancellor.

“It is becoming clearer by the day that working families will be forced to pay for a Tory Brexit that favours the rich and not the rest of us as our country faces its biggest rise in inequality since Margaret Thatcher.”

He added: “The next Labour Government would rewrite the rules of our economy in favour of working families with a real living wage expected to be £10 an hour by 2020 and proper investment to ensure no one and no community is left behind.”

Katherine Chapman, the director of the Living Wage Foundation, said the report painted a “bleak picture” for working families trapped in low pay.

"The case for employers to ensure their staff can earn a wage that is enough to live on is becoming hard to ignore. In these uncertain times, we encourage businesses, which can afford it, to join our movement of nearly 3,000 organisations, which are providing stability and security for their employees by paying all their staff, including those contracted out, a real living wage," she added.

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The Foundation report explains how a recent mini-boom in living standards has now ground to a halt because of rising inflation – 1.6 per cent in December, up from 1.2 per cent in November - and a "plateauing" of employment in recent months.

It says typical household income growth looks set to fall to just 1.2 per cent this year with the slowdown forecast to continue until the end of the decade.

UK Government policies on tax and benefits are blamed for having an unequal impact on the predicted squeeze on living standards.

The think-tank’s research says that while richer households were the hardest hit by the pay squeeze in the wake of the 2008 financial crisis, during the next four years the richest fifth of households are set to enjoy incomes gains of around five per cent.

This contrasts with the poorest half of households, which are forecast to see their incomes fall by an average of two per cent over the same period.

The Foundation’s report points out that this would make the current Parliament the worst for low and middle households since comparable records began in the 1960s with poorer families with children particularly affected.

"Britain has enjoyed a welcome mini-boom in living standards in recent years but that boom is slowing rapidly as inflation rises, productivity flat-lines and employment growth slows,” said Torsten Bell, the think-tank’s director.

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"The squeeze in the wake of the financial crisis tended to hit richer households the most but this time around it's low and middle income families with kids who are set to be worst affected.

"This could leave Britain with the worst of both worlds on living standards; the weak income growth of the last Parliament and rising inequality from the time Margaret Thatcher was in Downing Street," he added.

Meantime, new figures suggest that while consumers are still enjoying falling shop prices, it is "inevitable" there will be an upward trend in inflation this year, according to the retail industry.

According to the BRC-Nielsen Shop Price Index, January, overall, bucked the monthly trend of an easing in shop price deflation with prices down 1.7 per cent compared with the same time last year.

"For now, consumers continue to benefit from falling shop prices year on year. However, fluctuations in the monthly figures belie an underlying trend of building cost pressures that are gradually feeding through from the fall in sterling combined with higher commodity prices,” explained Helen Dickinson, the Chief Executive of the British Retail Consortium.

"This will inevitably mean that we start to see a general upward trend in inflation over 2017," she added.