Spending on essential items such as food, utilities, petrol and mortgages now accounts for 67% of household disposable income, according to new research.
Economists at Oriel Securities estimate that the average household now spends £2,091 a month on essentials, puts £162 into savings, and has just £854 left for ‘discretionary’ items, such as holidays, books and clothes.
Ten years ago, spending on essentials accounted for just 56% of disposable income.
Last week The Bank of England injected a further £75bn into the economy, with governor Sir Mervyn King describing the current situation as ‘the most serious financial crisis at least since the 1930s if not ever.’
Food and mortgage costs high
The rise in the basic cost of living has come despite a sharp fall in mortgage rates to their lowest level on record. While the average mortgage rate is 3.43%, the size of average household debt means this accounts for 17.7% of disposable income – the second highest monthly spend after food.
Darren Winder, Oriel’s UK economist, said the analysis demonstrates that interest rates will have to remain low for the forseeable future if households are to deal with their debt. He said: ‘Debt is crowding out growth in the economy. Households need more cash.’
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