Disposable income per household and consumer spending will continue to fall this year, according to the latest issue of the Deloitte Economic Review published today.
In the report Economic Adviser for Deloitte Roger Bootle warns that UK household finances are set to drop by two per cent in 2011, bringing them to the lowest level since 1977, barring the depths of the recent recession.
As inflation continues to rise overall consumer spending across the country is expected to drop a further one per cent over the year and if interest rates rise over this period, Bootle says circumstances for families could be at their worst since 1952.
“I think that this year will see falling real earnings, falling real house prices and rising unemployment,” Bootle commented.
“Of course, not all households will be affected equally. Attention has focused on the ‘squeezed middle’, but pretty much all households face a further squeeze over the next year or two.”
Most of the UK retail sector has been dealing with declining sales since the start of the year, despite a recent boost due to a sunny Easter and the feel-good factor surrounding the royal wedding, and this trend looks set to continue.
Retailers look likely to have to deal with dampened consumer spending in the short term but Bootle remains confident that the situation will start to improve next year.
He predicts that inflation will fall sharply in 2012 and be below its target by the end of that year, this will mean real incomes will start rising and taxes could start to fall rather than rise by 2015.
Bootle added: “We need to remember that the big picture is that the recent and looming falls in real incomes will reverse only a small part of the gains in both real incomes and living standards achieved over the past few decades. And more favourable conditions lie further ahead.
“But for those households struggling to make ends meet, that may still seem an age away.”