UK households are set to be £900 worse off this year in a “historic fall” in living standards but the lowest earners face a £1,300 blow to finances and the hit could be higher if the Ukraine crisis escalates, according to a report.

The latest UK economic outlook from PwC sees inflation hitting 8.4% later this year, which will mean a 2% drop in household incomes, marking the biggest fall in real wages since the 1970s and the largest decline in living standards since records began.

Russia’s invasion of Ukraine and belt tightening among households and businesses means the economy will grow at a slower-than-expected rate of 3.8% in 2022, down from the 4.5% previously pencilled in and last year’s record 7.4% expansion, the report suggests.

But in an even more gloomy outlook, growth could plummet to 2.8% and inflation peak at a 40-year high of 11% if Russia’s military advance continues and global sanctions against President Vladimir Putin’s regime ramp up.

That would see the poorest households potentially suffer a £1,600 knock to their incomes in 2022, PwC has warned.

It said while unlikely at the moment, its “economic escalation scenario” could see the UK energy price cap rise by another 75% in the autumn to around £3,500 if the UK and EU join the US in banning imports of Russian gas.

PwC said the UK “could face a historic fall in standard of living”.

Nick Forrest, UK economics consulting leader at PwC, said: “It is clear that many households and businesses will be feeling great pressure from rising costs this year.

“Were further sanctions introduced in response to pressure to rapidly curtail the use of Russian oil and gas, the UK economy would continue to grow but the pace of growth would be significantly slowed.

“The UK is not yet facing a growth crisis but it is facing an inflation crisis.”

Under its main forecast, PwC predicts that the energy price cap will rise by another 36% to £2,700 a year, while oil prices will peak at the current 116 US dollars a barrel and global food prices will leap 10% from levels seen in February.

But its more pessimistic scenario would see oil rise to 150 US dollars a barrel and worldwide food prices jump by 40%.

Barret Kupelian, senior economist at PwC, said: “Food and energy price hikes typically act like asymmetric tax hikes on households as its users cannot materially cut back on its consumption.

“This will act as a headwind to economic activity as households cut back on spending in other areas.”