Despite the UK's economic recovery starting to take hold, it doesn't look like it's filtering down into workers' pockets just yet. In fact, the Institute of Fiscal Studies (IFS) believes that the UK could face a continued squeeze on living standards long after the next election, with figures revealing just how hard finances have been hit.
The IFS calculated that the average household income between 2013 and 2014 was 6% lower than its pre-crisis peak – figures backed up by a report from the Office for National Statistics, which found that real wages have been consistently falling since 2010 – showing how dramatically living standards have fallen since the recession. However, although those on higher incomes have suffered an earnings drop of some 9%, it's the poorer sections of society that could be hit harder in the years to come.
The figures show that those on lower incomes have only suffered a drop of 2.4% in earnings, but with food and energy prices rising particularly rapidly since 2008 – by 30% and 60% respectively – they could be feeling it harder in their pockets. Those on higher incomes with larger mortgages, meanwhile, could have benefited from a significant drop in mortgage rates, with food and energy not taking up such a large proportion of their household earnings.
The outlook isn't particularly rosy either: "Looking forward, there is little reason to expect a strong recovery in living standards over the next few years… it seems highly unlikely that living standards will recover their pre-crisis levels by 2015 to 2016," it said in the report, with it being estimated that earnings won't reach their 2009/10 level until at least 2018.
So, what can be done? With income not expected to rise significantly any time soon – despite the Government controversially claiming last week that take-home pay is actually rising – it's time to take a close look at your finances to see if you can manage your budget more effectively.
One of the first things to do is look at your mortgage. Hopefully you're benefiting from record low interest rates with smaller monthly repayments, but if you're not or it's time to remortgage it'd be well worth comparing the options.
Then you'll want to analyse your household bills. With energy costs easily taking up a huge chunk of your monthly outgoings – particularly when you consider how quickly prices have risen – it's high time you compared energy tariffs to see if you could save some cash. The same applies for broadband providers – why spend a fortune when you could get a better deal elsewhere?
Reviewing your insurance policies could be another option, and if you've got credit card debts it could be time to consider a balance transfer card instead. Of course, don't forget a savings account – even putting away small amounts can soon add up, and an emergency fund could help ensure you can cover unexpected or rising costs without needing to face a cost of living crisis.
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