The think tank urged Chancellor Rishi Sunak to take decisive action to subsidize low-income households who are struggling with their day-to-day expenses and prevent a rise in children growing up in poverty.

In a report titled The Living Standards Outlook 2022, the think tank said, the gains made by the increased benefit packages introduced in 2020-21 in terms of reduction of poverty, and inequality will also be wiped out. They projected that absolute poverty, which fell to 16% in 2020-21 from 18% in 2019-20, will again decline to 18% in 2022-23.

The Resolution Foundation has said the drastic hike in oil and gas prices across the globe would mean that inflation in the country to rise above 8% in spring and a fall in incomes by 4% in the next fiscal. “Our preliminary estimate is that the conflict in Ukraine could push peak inflation in 2022-23 to above 8%. This could leave the typical real household income for non-pensioners 4%– or £1,000 – lower than in 2021-22. This is a scale of fall only previously seen around recessions,” they said in its report.

This comes at a time when the UK was already experiencing high levels of inflation at 5.5%, the worst since the last three decades before Russia’s invasion.

This inflation will be triggered by a global fuel price rise even though the UK is not dependent on Moscow for its gas requirements with only 5% of its total supply coming from Russia.

The report added, “We now assume that prices in 2022-23 will on average be 7.6% higher than in 2021-22, up from the Bank of England’s forecast of 6.2% in February. This ignores any possible impact on food prices which, if it did occur, would be particularly skewed towards low-income households.”

The study said that real incomes are projected to also fall in 2023-24, by 2%, driven by weak pay forecasts and the end of the government’s energy bills support package.

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Over the next four months, the new £55mn financial inclusion programme will be developed through a series of interviews, events and workshops which put the voices of those vulnerable to financial difficulties at the centre of the process. Their input will shape how the money is used to help people on low-incomes access financial services that can boost savings, increase protection against shocks, smooth incomes and widen access to fair, affordable and appropriate credit.

The programme development work is being led by the Big Lottery Fund and the Department for Digital, Culture, Media & Sport, in collaboration with HM Treasury, the Department for Work and Pensions, the Financial Conduct Authority and the Money Advice Service. Organisations such as UK Finance, the Association for British Insurers, Responsible Finance, the Association of British Credit Unions Ltd, the Financial Inclusion Policy Forum and the End High Cost Credit Alliance will also be involved in the design process to understand where dormant accounts funding can have the biggest impact.

Dawn Austwick, Chief Executive of the Big Lottery Fund, said: “Financial struggles can make it hard to support a family, maintain mental health and wellbeing, or plan for the future.  Looking afresh at these issues and involving those at the coalface in the design of possible solutions is at the heart of this next stage in the development of the Dormant Accounts Financial Inclusion Programme.”

Tracey Crouch, Minister for Sport and Civil Society, said: “This funding will benefit some of the most vulnerable in society by helping them access the right financial services when they need it most.

“I will work in close partnership with Big Lottery Fund and colleagues across Whitehall to devise these plans as part of our commitment to create a fairer society fit for the future.”

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