‘The worst is yet to come for consumers’

UK household incomes in longest-ever run of declines due to runaway inflation as agonising autumn for personal finances looms.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “UK household incomes are in the longest-ever run of declines thanks to runaway inflation, and the harsh reality is the worst is yet to come for consumers.

“Inflation outpaced growth in earnings again in Q1 this year, for the fourth consecutive quarter, as UK households endured the longest fall in real income on record. Since then, the cost-of-living crisis has gone from bad to worse for consumers with the price of seemingly everything on the up, from groceries to how much we pay for fuel and energy.

“Runaway inflation is forcing many Britons to make serious lifestyle changes to maintain financial buoyancy. The sacrifices needed are often starker for low-income households. We have seen troubling reports of people skipping meals to weather rising prices.

“The fall in real household income leaves consumers less protected against what promises to be an agonising autumn for personal finances, with the energy price cap is set to rise again, adding £800 on to the typical annual household energy bill, while inflation is set to rocket to 11%.

“Higher prices are here to stay, so it remains important to pay extra attention to your financial well-being and consider what protective steps you can take now to avoid money worries later.”

Key points

• New data by the Office For National Statistics revealed real household disposable income fell by 0.2% in Q1 2022.
• This is the fourth consecutive quarter of real negative growth in disposable income, with household quarterly inflation the highest since Q1 2011, when it was 2.4%.
• The household saving ratio remained unchanged at 6.8% in Q1 2022.
• Households saw an increase in their net lending position to 0.9% as a percentage of GDP in Q1 2022, up from 0.6% of GDP in Q4 2021.
• This was driven by a rise in wages and salaries, predominately in the private sector, and an increase in other capital transfers, but partially offset by a rise in final consumption expenditure, itself driven by increased spending on consumption-related FISIM, and restaurants and cafes.