The average family is facing the biggest peace-time squeeze on their finances since 1921, according to a forecast by the Centre for Economics and Business Research (CEBR).
The new figures estimate that households will have £27.3 billion less spending power in 2011 than in 2009 – a fall of £910 per household. The CEBR suggests the UK is now seeing a bigger decrease in household disposable incomes than in the 1930s – aside from World War II and the General Strike, it’s the biggest drop since 1921.
The report estimates that the fall in disposable incomes equates to an overall drop of 2% in 2011, following a decrease of 0.8% to household budgets in 2010.
Budgets hit by high energy costs
The fall in real disposable income is said to be a result of high inflation and weak earnings growth. The CEBR expects the annual rate of inflation across 2011 to be 3.9% – the highest since 1992 – while earnings growth will edge up to just 1.9%, as unemployment remains high.
The high rate of inflation is attributed to surging global commodity prices and the rise in VAT in January. The rising prices of energy, cotton, metals, food and other raw materials are also major factors according to the CEBR.
GDP growth slow
The CEBR says that the lower spending power means that the economy will only grow by 1% in 2011, and will be ‘subdued” for the next two or three years.’ It’s forecast is below the 1.7% predicted by the government’s Office for Budget Responsibility.
With shopper remaining cautious, many retailers have recently reported harsh conditions on the high street this year, with HMV last week issuing its third profits warning since January.
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