By Max Clarke
Barring the General Strike and the Second World War, disposable incomes for UK households have suffered their biggest fall since 1921.
Britons will have £27.3 billion less to spend this year than in 2009, equating to some £910 pounds per household. This reduced spending power has resulted in UK consumer confidence falling to record lows as the retail sector struggles under the reduced spending.
The fall in real disposable income is a result, say the London based Centre for Economics and Business Research (Cebr), of high inflation and weak earnings growth. Cebr expects the annual rate of inflation across 2011 as a whole to come in at 3.9%, the highest since 1992, while earnings growth will edge up to 1.9%, as unemployment remains high. The high rate of inflation is mainly a result of surging global commodity prices and the rise in VAT in January.
Rising prices of energy, cotton, metals and other raw materials and food are the major factor, caused by a combination of supply side shocks and strong demand from emerging markets. By comparison, public spending cuts are only a minor element in the squeeze on household incomes.
‘We have been pointing out the pressures on household incomes for over a year,” commented the author of the research, Douglas McWilliams, “during which the underlying position has deteriorated as average earnings growth has remained very low while commodity price inflation has accelerated. Most other forecasters have been gradually adjusting their forecasts into line with us.