Households face longest income slump for six years

Updated: 

British households are enduring the longest fall in their disposable incomes for six years as they grapple with rampant inflation and lacklustre wage growth.

Figures from the Office for National Statistics (ONS) showed real household disposable income per head dropped by 1.1% in the second quarter of this year, underscoring the pressure on cash-strapped consumers.

It means disposable incomes have now declined for four quarters in a row, marking the longest period of negative growth since the end of 2011.

Quarter-on-same-quarter-a-year-ago growth in real households disposable income per head, and impact of methodological improvements, chain volume measure (ONS)
Quarter-on-same-quarter-a-year-ago growth in real households disposable income per head, and impact of methodological improvements, chain volume measure (ONS)

While an expansion in wages and salaries provided some support to disposable incomes, the slump was only made worse by higher prices over the period.

The update comes as a separate study revealed that consumers felt their financial situation had deteriorated for the first time in two years.

Consumer perceptions of general economic situation and their own financial situation over last 12 months, January 2006 to June 2017 (ONS)
Consumer perceptions of general economic situation and their own financial situation over last 12 months, January 2006 to June 2017 (ONS)

It showed a balance of minus 2.3 for April to June, compared to a positive reading of 1.2 over the same period last year, according to the Eurobarometer Consumer Survey.

Jane Goodland, a director at Old Mutual Wealth, said: "The current UK population are increasingly having to tighten their purse strings and they are feeling the pressure of doing so.

"Numbers from the ONS today show that households have faced the longest period of consistent negative growth in real disposable income, with a steady decline since the end of 2011.

"This decline is beginning to impact people's perceptions as, for the first time in two years, consumers reported a worsening of their perception of their own financial situation.

"The population's view of their ability to afford their lives is crucial to their well-being and indeed their saving habits. "

Rising clothing and fuel prices caused inflation to rebound in August to 2.9%.

It brought an end to a momentary pause in June and July at 2.6%, and matched levels last seen in May this year and June 2013.

The Bank of England has indicated that interest rates could rise in the coming months to help temper soaring inflation fuelled by the Brexit-hit pound.