Workers will start to feel better off this year
British workers will start to benefit from lower inflation and taxes this year, ending the year £482 better off than they were in 2011, according to a new report.
The Ernst & Young ITEM Club suggests that inflation could fall to two per cent by the end of the year, as long as oil prices continue to fall.
This would bring prices in line with wages and with the benefit to wage packets from the increase in the personal tax allowance, workers will feel the benefit.
The report suggests that this boost will continue into 2013, when workers will be £624 better off.
This should result in an improvement in spending on the high street, although the ITEM Club warned that retail recovery will be slow as consumers will initially focus on reducing personal debt as their income rises.
Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “After the tightest squeeze on consumer incomes in a generation, the worst is now behind us.
“Wage growth will finally begin to outpace inflation and our pay packets will also be boosted by the tax changes announced in the Budget.”
However Mr Goodwin warned that the eurozone crisis still presents a major risk to the UK economy.
“The eurozone crisis continues to cast a long shadow and consumer confidence could easily take another hit if the situation worsens, particularly if unemployment nudges up,” he said.
Prime Minister David Cameron has been discussing contingency plans with Bank of England governor, Sir Mervyn King, in case the eurozone crisis does worsen.
A meeting was held yesterday to devise a strategy to insulate the UK economy from deterioration in the euro-area debt crisis.
The meeting was also attended by Financial Services Authority Chairman Adair Turner, Chancellor of the Exchequer George Osborne, Deputy Prime Minister Nick Clegg and Chief Secretary to the Treasury Danny Alexander.