Five more years of falling income, think-tank warns

UK households are £868 worse off in real terms than they were in 2009, a report from the Centre for Economics and Business Research (CEBR) has warned - and things are going to get worse.

Commissioned by Asda, the report concludes that real income will continue to slide; by 2018, it says, households will be £1,300 worse off than in 2009.

The culprits are sluggish income growth and rising costs, with price inflation on essential items expected to outstrip pay every month for the next five years. By 2018, the average UK household will spend £3,900 a year more on essential items such as transport, utilities and housing than they do now. Meanwhile, wage growth will remain below pre-recession levels.

"Looking ahead to the next five years, one thing is clear: it's going to remain incredibly tough for consumers," says Asda CEO Andy Clarke. "While the economy may be on the road to recovery, the economic reality for them is very different depending on where you live and your age."

Younger people are being particularly hard-hit, he says, with the under-30s seeing their disposable income fall by 4.7 percent in the last five years. Meanwhile, 30- to 49-year-olds are 13 percent better off, and 65- to 74-year-olds have nearly 12 percent more, thanks largely to the
'triple lock' on pensions.

Those already on low pay will see their disposable income fall furthest, the report warns, with the poorest households set to lose £1,200 a year in real terms. And there are strong regional differences, with Northern Ireland predicted to do worst, while the East, London, Yorkshire and Humberside and Scotland will have the highest levels of growth.

Clarke says that there are signs of economic recovery, and that there has been a small recent rise in spending power.

"However, while economists believe we may well be at the beginning of what will be a long path to recovery, over the last five months the Income Tracker has steadily declined," he says.

"Any green shoots have yet to translate into more money in people's pockets or greater consumer confidence. We know families are resolute, but until we see a more sustained improvement, we remain only cautiously optimistic."

The report echoes figures produced by the Office for Budget Responsibility, which last month revealed that wages grew by just three percent between April and June this year, while inflation stands at 2.8 percent. The Treasury has created a working group to find ways of easing the burden of rising transport and housing costs.

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