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Households face £780 fall in disposable incomes

Households face £780 fall in disposable incomes

Category: Money

Updated: 03/05/2011
First Published: 03/05/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

UK households face a near £800 fall in their disposable incomes this year, as a combination of factors begin to take their toll.

A report by Deloitte has found that, on average, a UK household will experience a 2% fall in disposable income in 2011 – the equivalent of about £780.

Inflation outstripping pay growth, tax rises and spending cuts will all play their part in putting further pressure on household finances.

With inflation currently at 4.00% - double the Government's long term target - real earnings are set to fall for a forth year in succession for the first time since the 1870s.

The report warned that inflation could possibly move above 5.00% this year.

Deloitte's chief economic adviser, Roger Bootle, said that consumers would have little choice but to cut their spending, with an expected 1.00% fall this year and a further 0.5% in 2012.

"Of course, real incomes do not provide the definitive picture as to the health of households' finances," he added.

"But taking a broader look at households' finances arguably leaves the position looking even worse. I
think that this year will see falling real earnings, falling real house prices and rising unemployment.

"In terms of the year-on-year change in circumstances, although not the absolute level, that would make 2011 the worst year for households since 1977, the depths of the recent recession aside."

The Bank of England has been urged not to heap further pressure on UK households with a rise in interest rates, with a warning that an increase could arguably leave conditions at their worst since 1952.

There is a chink of light at the end of the tunnel for many, as more favourable conditions lie ahead.

Mr Bootle said that inflation will fall sharply next year and below the 2.00% target by the end of 2012, allowing incomes to start rising again, while tax cuts could also be possible.

"But for those households struggling to makes ends meet, that may still seem an age away," he warned.

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