Year-long fall in UK households’ disposable income

The disposable income of UK households has declined for the fourth consecutive quarter, for the first time since records began.

Figures from the Office for National Statistics (ONS) show that real household disposable income declined by 0.2% in January to March 2022, with a 1.5% rise in nominal household income outstripped by household inflation of 1.7%.

The ONS also confirmed its earlier estimate of 0.8% growth in GDP for the first quarter. This is a decline from 1.3% in the previous three-month period, but means that GDP remains above the last quarter of 2019, before Covid-19.

“Our latest estimate for economic growth in the first quarter is unrevised as a whole, showing the UK continued to recover from the pandemic,” said Darren Morgan, director of economic statistics at the ONS

“Both household incomes and spending rose in cash terms in the first quarter, leaving the rate of saving unchanged. However, once taking account of inflation, incomes fell again, for the fourth consecutive quarter.”

The squeeze on family finances is unlikely to have improved during the second quarter as the rate of inflation has remained well above wage growth, Sky News noted.

Household incomes expected to remain below pre-pandemic levels for two years

UK households will remain worse off than before the pandemic for another two years, according to the Office for Budget Responsibility (OBR).

Charlie Bean, a former Bank of England deputy governor and board member of the OBR, told MPs that household disposable income would not return to 2019 levels until the second half of 2023.

Officials also expect the UK’s productivity growth to remain low.

“We do have a modest pickup in productivity growth [in our forecast]. But it’s not back up to anything like the pre-epidemic rates,” Bean said.

Forecasts issued by the OBR alongside last week’s Budget showed that household incomes would be weighed down by inflation over the next two years, before rising by just 1.3% a year on average by the middle of the decade, the Guardian reports.

The Institute for Fiscal Studies (IFS) took a similar view, saying that the outlook for wages remained weak and it expected inflation and higher taxes to negate many wage rises.

Necessary Family Income Risen 16% Above Inflation

Since the beginning of the recession the earnings the average family needs to maintain a minimum lifestyle has risen 16% above inflation, claims a recent report. The research, recently published by the Joseph Rowntree Foundation, shows that families need more money than ever to maintain a socially acceptable standard of living.

The report – which is an update on the foundation’s 2008 report – was conducted by interviewing hundreds of people in the UK about their finances and what they consider necessary expenses. A Large part of the inflation-busting increase, it was found, came from the rising costs of transport, utility bills and childcare. Findings suggest that whilst most are aware that times are tough and costs were rising the real-term income of many working families was falling, in many cases due to tax credit cuts.

It also found that whereas a single person now required a gross income of £16,400 per year to meet their minimum expectations, a family of two adults and two children required an income of £36,800 per year (before tax).

What was interesting is that despite the growing hardship people are facing, their expectations have not fundamentally changed since the last report was carried out in 2008.

People in urban areas (excluding London) still considered a car as an essential item, whereas a computer and the internet are now accepted as a necessity for those of working age with children. People’s expectations had fallen in relation to eating out and what constituted an acceptable budget for Christmas and birthday presents.

Most still found that a one week holiday was a necessity, although most accepted that break did not have to be abroad and for those with children a one week self-catering holiday in a resort like Haven or Butlins would be sufficient.

It is clear that whilst the financial situation for many families is difficult, attitudes towards what constitutes as a ‘necessity’ are also changing in line with many aspects of modern life.

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