The average monthly income of UK households fell by £22 in real terms compared with last year, according to a survey carried out for the Bank of England (BoE) by NMG Consulting.

People on lower incomes have seen their income eroded more than higher earners and households still have high levels of debt the BoE reported.

The survey, which was published by the BoE in its latest Quarterly Bulletin, found that the 62 per cent of households in the lowest income bracket had suffered a fall in after-tax income in the past year, compared with 48 per cent of those in the highest income bracket.

Average monthly pre-tax incomes fell by £43 to £2,627 this year, more than offsetting growth in wages, which were estimated to have increased by just 1.3 per cent in October.

CPI inflation of 2.2 per cent, higher VAT, rising food and energy costs and more expensive imports, all increased the pressure on household incomes.

The survey identified high levels of household debt, with 35 per cent of households reducing their spending due to debt worries.

Economists suggest that inflation could rise to over 3 per cent next year, as the effect of higher fuel prices kicks in.

Speaking to The Telegraph, Howard Archer of IHS Global Insight, said: “It still looks very possible that increased energy tariffs and higher food prices could push consumer price inflation up to 3pc early in 2013 and keep it there for a while.

“Further utility price hikes will kick in during December and January.”

A separate survey by Lloyds TSB also found that inflation is eroding household incomes.

In November, inflation rose 0.1 per cent faster than the earnings of its current account customers, the bank said.

Lloyds TSB customers are estimated to have seen their annual spending power fall by £11.

Chancellor George Osborne has welcomed remarks made by the incoming Governor of the Bank of England about scrapping the inflation target to focus on gross domestic product (GDP).

Such a change in strategy would require the Bank of England to introduce new measure to stimulate the economy, even if this caused inflation to rise.

Mark Carney, who will take over from Sir Mervyn King when he steps down next year, made the remarks on Monday, in a speech at the CFA Society in Toronto.

Mr Carney, who is currently Governor of the Bank of Canada, said: ‘To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, if inflation picks up.

‘To “tie its hands” a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus.

‘If yet further stimulus was required, the policy framework itself would likely have to be changed.’

‘For example adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting,’ he continued.

Mr Osborne said that the Mr Carney’s ideas were ‘innovative’ and he was pleased they had been raised.

Inflation targeting was introduced by the majority of central banks in the 1990s.

Currently, the Bank of England’s target is to keep inflation at 2 per cent.

While welcoming the debate, Mr Osborne said the target had ‘served us well’ and said a strong case would need to be made in order to change it.

The Bloomberg monthly survey of 35 economists suggests that UK inflation will increase faster than expected in 2013-14.

Gains in the consumer price index are expected to average 2.5 percent in 2013, higher than the 2.2 percent forecast in November.

Chancellor George Osborne is extending the government’s austerity measures until 2018, a year longer than expected, after the Office for Budget Responsibility revised down its forecast for economic growth.

Last year, the OBR was optimistic that the economy would grow by 0.8 per cent this year, but it now expects it to contract by 0.1 per cent, partly due to continuing problems in the euro zone.

The OBR has revised its forecast for next year from 2 per cent growth to just 1.2 per cent growth.

The OBR was established by the Chancellor in 2010 to provide the Treasury with independent forecasts, but it has been criticised for continuing to produce over-optimistic figures.

In his Autumn Statement the Chancellor revealed that he would not achieve his target to have debt falling by 2015-16 as a percentage of national income.

It is now expected to take until 2016-17 for debt to start to fall.

Speaking to the House of Commons, Mr Osborne said: “The public know that there are no miracle cures.

“Just the hard work of dealing with our deficit and ensuring Britain wins the global race.

“The message from today’s Autumn Statement is that we are making progress.

“It is a hard road but we’re getting there and Britain is on the right track and turning back now would be a disaster.”

Mr Osborne also announced that benefits would increase by just 1 per cent next year for the next three years, a substantial drop from the expected increase of 2.2 per cent in 2013-14.

The move will save the Treasury £3.7bn a year by 2015-16.

On a more positive note, a planned 3p increase in fuel duty has been cancelled and the personal tax allowance will be increased to £9,440 from next April, a larger increase than planned.

The latest purchasing managers’ index (PMI) survey from Markit also brought bad news on the economy.

An unexpected slowdown in the services sector caused November’s survey to fall to a 23-month low of 50.2, down from 50.6 in October.

A reading below 50 indicates economic contraction.

The figures have raised concern that Britain could be heading for a ‘triple-dip’ recession.

Economic growth is still too weak, the British Chambers of Commerce (BCC) says, although growth exceeded expectations in the last quarter, helped by the Olympics.

The BCC expects the UK economy to contract by 0.1 per cent this year, an improvement on the 0.4 per cent contraction previously forecast.

However, the organisation has reduced its growth forecast for 2013 from 1.2 per cent to just 1 per cent, and has also cut its growth forecast for 2014, from 2.2 per cent to 1.8 per cent.

This reflects the worsening global economy, including the ongoing debt crisis in the eurozone, and expected further spending cuts in the UK.

BCC Chief Economist David Kern said: “We expect quarterly growth to increase gradually over the next two years, but we have to accept that it will remain modest and below trend for some time.

“Although there will be a slow improvement over the medium term, GDP will only return to its pre-recession levels at the end of 2014.”

While acknowledging that deficit reduction is important, the BCC is calling on the government to take action to deliver economic growth.

The Chancellor, George Osborne, is expected to confirm that the government will continue with its austerity strategy, when he announced his Autumn Statement tomorrow.

Independent economic forecasting body, the Office for Budget Responsibility (OBR) is also expected to deliver bad news on growth tomorrow.

Economists at Investec suggest that the OBR’s March estimate of 0.8 per cent growth for 2012 could be downgraded to a small contraction, while its forecast for 2 per cent growth in 2013 could be reduced by 0.5 percentage points.

The OBR is also expected to suggest that the Chancellor is failing to meet his ‘fiscal golden rules’ – the targets he set in his first budget.

Mr Osborne set himself the goal of eliminating the structural deficit on a rolling basis over five years, and for overall national debt to be falling as a proportion of GDP by 2015-2016.

Prior to the Chancellor’s Autumn Statement on 5 December, the Institute for Fiscal Studies (IFS) has warned that the squeeze on public spending may have to continue to 2017/18.

Slower than expected economic recovery may mean that the Chancellor, George Osborne, will need to raise another £11 billion from further cuts or by increasing taxes.

This would be on top of a further £8 billion cut in the welfare budget which is already planned.

The economy’s poor performance means that tax receipts have fallen while welfare payments are increasing, making it difficult for the government to reduce public spending.

Carl Emmerson, deputy director of the IFS, said: “Since the budget, the outlook for the UK economy has deteriorated and government receipts have disappointed by even more than this year’s weak growth would normally suggest.

“The planned era of austerity could run for eight years – from 2010-11 to 2017-18.”

When the coalition government was elected in May 2010 the Chancellor said he would almost eliminate the UK’s budget deficit by 2015 and reduce net debt as a proportion of GDP by 2015-16.

The IFS says that Mr Osborne is unlikely to achieve the second target and it may have to be scrapped.

Meanwhile, the British Chambers of Commerce (BCC) is calling for the government to increase investment in infrastructure projects in order to boost the economy.

In its report on transport priorities the BCC claims that investing £30 bilion on infrastructure projects such as Crossrail and the Forth Bridge, would generate £86 billion for the economy.

Adam Marshall, the BCC’s director of policy, said: “We need bold action from the government to improve the UK’s transport infrastructure.

“This kind of investment is insulated from global uncertainty, and it creates short-term confidence, jobs in the medium term, and improves the UK’s competitiveness in the long term.”

The average annual earnings of full-time UK workers increased by 1.4 per cent to £26,500 in the year to April 2012, according to the latest figures from the Office for National Statistics (ONS).

However, with inflation at 3.5 per cent during this period, the figures represent a fall in the value of pay in real terms.

Workers in Northern Ireland saw a greater increase than those in the rest of the UK, with gross annual earnings for full-time employees up 4.2 per cent, but their average salary of £24,011 is still significantly lower than for the UK as a whole.

Commenting on the figures, Northern Ireland enterprise minister Arlene Foster said: “Whilst this is encouraging it is recognised that in order to reduce further the pay gap that exists between Northern Ireland and the UK, as well as promoting economic recovery, the private sector requires more highly paid jobs.”

There was a large variation in pay levels across the UK, with the City of London accounting for the highest average full-time earnings of £917 a week, while workers in Torridge, Devon, receive an average of just £348 a week for full-time work.

The ONS’s annual survey of hours and earnings brought positive news for women, with the gap between men’s and women’s earning narrowing from 10.5 per cent of men’s full-time hourly earnings to 9.6 per cent.

The gender pay gap has been narrowing for a number of years, with wages for women rising faster than for men, but it is the first time the gap has fallen below 10 per cent since records began in 2000.

The average annual earnings of full-time male workers increased to £28,700, while women earned £5,600 less a year on average.

The ONS reported that in April 2012, 287,000 people, or 1.1 per cent of all workers in the UK, were in jobs paying less than the national minimum wage of £6.19 an hour for those aged 21 and over.

A recent survey by KPMG found that 20 per cent of workers in the UK receive less than the ‘Living Wage’ of £8.30 an hour in London and £7.20 in the rest of the UK.

The Living Wage is the amount required to maintain a basic standard of living.

Financial information services company Markit has reported a further improvement in household finances.

Although household finances are continuing to deteriorate, the rate of deterioration fell in November, to its slowest rate for two years.

The Markit Household Finance Index increased from 39.0 to 39.3, its fifth increase in six months, but this is still well below 50.0, which indicates no change.

In November, 28 per cent of households said that their finances had deteriorated over the month, compared with 37 per cent in November 2011.

Seven per cent more households said that their finances had improved compared with the previous month.

Tim Moore, Senior Economist at Markit said: “November’s survey highlights that the alleviation of strains on household finances has continued as winter approaches.”

A fall in inflation in October is likely to have coloured households’ perception, although inflation increased again in November.

Markit reported an improvement in households’ financial outlook from 37.4 in October to 41.8 in November.

However, this still remains well below September’s score of 44.3.

With rents increasing rapidly due to high demand, the survey revealed a large drop in the finances of people renting from private landlords in November.

Meanwhile, a report for the Guardian suggests that households are cutting back on fresh fruit and vegetables and turning to high-fat processed foods which are perceived to be cheaper and more filling.

The Breadline Britain report found that 900,000 fewer people are managing to eat five daily portions of fruit and vegetables than they were two years ago.

Data compiled for the report by consumer analyst Kantar Worldpanel showed that consumption of fat, sugar and saturates has increased substantially since 2010, especially in the lowest income households.

The price of food has increased by 32 per cent over the past five years according to official figures, while households have faced wage freezes, high unemployment and benefit cuts.

Families with two children need to bring home £24,800 a year just to break even, according to financial advisory firm Skipton Financial Services.

This means that they need to be earning more than £30,000 a year gross in order to survive.

The cost of living has increased by £130 compared with last year Skipton revealed, after surveying of the expenditure of 2,000 families with at least two children.

Skipton took only essential spending into account in its calculation of the minimum needed to survive, including housing, utilities, insurance, food shopping and motoring, clothing, mobile phones and landlines, travelling to and from work and property maintenance.

It excluded any luxuries such as eating out, leisure activities and holidays.

The study revealed that weekly food bills have increased by £33 to £86, while the cost of travelling to and from work has increased by £216 to £2,672 a year on average.

Other items which have increased substantially include television subscriptions, home insurance premiums and mobile phone bills.

Andrew Barker, managing director of Skipton Financial Services, said: “It is easy to understand why the large majority of Brits are so cash-strapped.

“While there has been some change in spending habits this year compared to last, families are still paying out almost as much money on the food shopping as they are on their mortgage payments.

Utility bill expenditure remained stable at £1,283 a year but this looks set to change following recent increases in energy prices.

The average energy bill is expected to reach £1,392 over the next year, which will push the cost of living even higher for struggling families.

Energy company SSE, which increased prices by 9 per cent last month, today reported a 38 per cent increase in half-year profits to nearly £400 million.

Earlier this year both British Gas and EON increased their profits by almost 25 per cent.

The Bank of England has reduced its growth forecast to 1 per cent and does not expect inflation to fall to its 2 per cent target until the middle of next year.

Presenting the Bank’s quarterly Inflation Report, the governor of the Bank of England, Sir Mervyn King, said that economic recovery would be “slow and protracted”.

One off events such as the Olympics boosted growth figures in the July to September quarter, while bad weather contributed to weak growth in the quarter from April to June.

Sir Mervyn warned that this fluctuating pattern was likely to continue, with lower output in the fourth quarter.

He said: “Continuing the recent zig-zag pattern, output growth is likely to fall back sharply in Q4 as the boost from the Olympics in the summer is reversed.

Indeed, output may shrink a little this quarter,” he said.

Sir Mervyn warned that recent figures create an “overly optimistic impression” and said that economic growth is not expected to reach pre-financial crisis levels until mid-2015.

Meanwhile, the Treasury has added Sharon Bowles to the shortlist to replace Sir Mervyn as Bank of England Governor

Ms Bowles, a physicist and mathematician, is a Liberal MEP who chairs the European Parliament’s economics and monetary affairs committee.

If she is appointed she will be the central bank’s first female governor in its 318-year history.

The shortlist also includes favourite for the role, the current deputy governor Paul Tucker, as well as Lord Burns, chairman of Santander UK; Sir John Vickers, chairman of the Indepedent Commission on Banking; and Lord Turner, chairman of the Financial Services Authority.

The Chancellor is expected to make a decision on the appointment within weeks.

Ms Bowles said: “We need a strong signal of change, change that flows through the City.

“The new Governor has is to restore faith in the banking system. What bigger sign of change is there than choosing a woman and an outsider?”

A combination of higher tuition fees and food prices pushed the inflation rate up to 2.7 per cent last month, according to the latest figures from the Office for National Statistics (ONS).

Inflation on the Consumer Prices Index (CPI) increased to 2.7 per cent from 2.2 per cent in September, while the Retail Prices Index (RPI) measure of inflation, which includes housing costs, increased to 3.2 per cent from 2.6 per cent.

Students starting university this year faced maximum tuition fees of £9,000 after the cap was lifted from £3,375, and this was the main contributory factor to the increase.

Wet weather caused food prices to increase, due to poor crop yields, and confectionery prices rose after manufacturers reduced the size of products.

The October figures make it more likely that the Bank of England will revise its short-term inflation forecasts upwards when it releases its quarterly update later this week.

The ONS has revealed plans to introduce the CPIH measure of inflation from March 2013, which will include housing costs.

Meanwhile, the high cost of living has caused donations to charity to fall by £1.7bn in a year.

According to research by the Charities Aid Foundation and the National Council for Voluntary Organisations, charitable giving fell by 20 per cent this year.

Both the number of donors and the amounts being donated have fallen.

Three quarters of those who have cut their charity donations said this was due to a fall in their disposable incomes as the cost of living has risen.

The average amount people donate each month has fallen from £12 a month in 2009/10 to £10 in 2011/12.

The two organisations are launching a campaign to Back Britain’s Charities and promote charitable giving.