‘Getting by’ is the norm for many households amid rampant inflation

interactive investor comments on ONS household disposable income and inequality stats.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The pandemic and rampant inflation robbed Britons of purchasing power, with disposable income falling the most (almost 4%) among the poorest fifth of the population in the 2021-22 financial year, compared to a decrease of 0.6% on average.

"The figures are greatly influenced by the pandemic. The nation was under lowdown for the third time at the start of 2021 before the slow to return to normality – or thereabouts. The dramatic fall in income during to pandemic due to job loss or reduction in work hours has had a devastating effect on many. The poorest households were also hit by the removal of the Covid uplift to universal credit recipients.

“Meanwhile, disposable income increased by 1.6% to £66,000 for the richest fifth of people (without factoring increases to direct taxation), meaning that the gulf between the rich and poor has widened.

“It is clear that the cost-of-living crisis has widened this wealth inequality further. The eye-watering rise in seemingly all areas of expenditure hit low-income households the hardest as they spend a greater share of their income on core needs, such as housing, energy, food and clothing. 

“In the new world of spiralling costs, just getting by has become the normal for many households. Our spending power is being pummelled by high inflation which continues to outstrip growth in earnings, resulting in an unprecedented shift in household spending the upending long-standing consumer habits. Official data shows that spending on ‘nice-to-have’ goods have waned considerably in the face of rising food and energy bills.

“The figures for the current financial year are likely to make for grim reading as inflation soared to 40-year of 11.1% since April 2022. Inflation has come down a bit since then, falling to 10.5% in December, but it remains near a 40-year high. While the fall in prices at the pump and in clothing has seen a recent months, the price of food, one of the stickiest inflation categories as they form part of essential spending, remain stubbornly of the upwards trend. The annual rate of inflation for this category has risen for 17 consecutive months, and part of what’s fuelling this are price jumps in everyday larder products, such as milk, cheese and eggs.

“We’re not out of the woods yet. As such it remains important to keep on top of your finances. The headline inflation figure can dramatically differ from your own personal inflation number, so it is worth keeping tabs on your spending habits.”

Key points

• In the 2021-22 tax year, median household disposable income in the UK was £32,300, down 0.6% from 2020-21.
• Median disposable income for the poorest fifth of the population decreased by 3.8% to £14,500 in 2021-22.

Median disposable income increased by 1.6% to £66,000 for the richest fifth of people; increases were also observed in mean original income where the effect was not offset by the increases in direct taxes.