Changes to the tax system and falling inflation will bolster the wallets of the average earner by almost £500 this year, according to a new report.
After a 'torrid' five years, the Ernst & Young ITEM Club said there is now 'light at the end of the tunnel for the hard pressed consumer', who it calculates will benefit by £482 this year and £624 in 2013.
Suggesting consumers will feel better off by the end of the year, the report said that, provided oil prices continue to ease, inflation is likely to move back towards the 2% target by the end of the year, bringing prices into line with wages.
This, combined with an increase in the personal tax allowance, will see real take home pay stabilising this year and accelerating into 2013, which will benefit the vast majority of consumers.
In turn, this is predicted to feed through to a 'steady pick-up' in spending that should provide a much needed boost to the UK 's high streets.
Retailers have been warned, however, that any recovery will be 'slow and steady', as consumers concentrate on paying down debt rather than spending.
Indeed, it is forecast that spending levels won't return to pre-recession levels until 2015.
"After the tightest squeeze on consumer incomes in a generation, the worst is now behind us and most people should start to feel a bit better off by the end of the year," said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club.
"Wage growth will finally begin to outpace inflation and our pay packets will also be boosted by the tax changes announced in the Budget.
"Only the top 10% of the income distribution, earning above £36,000, and the bottom 10%, who aren't liable for income tax, won't benefit from the increase in the personal allowance."
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