Households’ disposable income falls
In the 2012 first quarter, individuals’ disposable income fell to the lowest level since 2003, according to new figures from the Office for National Statistics.
Spending power is being eroded because wages are failing to keep up with inflation causing the average disposable income in the first quarter to fall to £273.
Disposable income including tax and benefits fell by 1 per cent per head in the first quarter, compared with the final quarter of 2011.
Real household actual income per head, before tax and benefits, fell by 0.6% in the first quarter of 2012, compared with the previous quarter, to its lowest level since the second quarter of 2005.
Many employees are facing wage freezes as businesses try to make savings in the face of the economic crisis.
The ONS also cited population growth as contributing to the fall in disposable income.
Savings levels fell during the first quarter, as families found they had less money to put aside for a rainy day, with households saving 6.4% of their disposable income, down 0.5% from the previous quarter.
However, the Centre for Economics & Business Research (CEBR) is optimistic that spending power will improve next year.
In its quarterly UK Prospects report the CEBR said that household disposable income will rise faster than prices in 2013 for the first time since 2010.
This will be a result of higher tax-free personal allowances and falling inflation.
Inflation currently stands at 2.4 per cent, compared with 5.2 per cent in September 2011.
The CEBR expects it to fall to 1.6 by spring 2013.
Scott Corfe, author of the report, said: “Slowing price growth will boost household spending power and also give the Bank of England room for manoeuvre in keeping interest rates on hold until 2016.”