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Friday 10th February 2012

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Consumer spending power falls dramatically

Disposable incomes have fallen to their lowest for five years according to the Ernst & Young Annual Discretionary Income Study

An average household's monthly discretionary income is now £772.79 - compared with £909.84 in 2003/04.

After household bills and tax, it found the typical family had less tha

n 19.96 per cent of its gross income remaining - compared with 28.38 per cent in 2003.

"Many UK consumer segments are clearly feeling the pinch as big rises in household costs are far outstripping relatively modest wage inflation,"

said Jason Gordon, director of retail at Ernst & Young. "All consumers are painfully aware of the huge hikes in petrol and utility bills but we've also seen some fairly hefty price increases in pension contributions and debt repayments," he said.

"If we go one step further and factor in food price inflation it's clear that household budgets are under enormous strain. Add in the impact of falling house prices on the consumer's propensity to spend, and the consumer economy is undoubtedly on a knife-edge. Worryingly, though, the worst could be yet to come. If, as predicted, utility prices rise by as much as 40% later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times."

The figures contrast with the Bank of England's official measure which puts annual inflation at just 3.3 per cent.

Tagged as: ernst and young

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