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UK household incomes fall for fourth consecutive quarter

·Business Reporter, Yahoo Finance UK
·3-min read
UK household incomes are down
The 0.2% fall in real household incomes in the first three months means that earnings are 1.3% lower than a year ago, even before April’s energy bills and taxes rise started. Photo: Press Assocation

UK household incomes slumped for a fourth consecutive quarter at the start of this year, as the cost-of-living crisis continues to bite.

As inflation outpaced earnings between January to March, it marked the longest run of declines since 1955, the Office for National Statistics (ONS) revealed on Thursday.

The 0.2% fall in real household disposable incomes in the first three months means that earnings are 1.3% lower than a year ago, even before April’s energy bills and taxes rise started.

Although nominal household income grew by 1.5% during the period, it was offset by quarterly household inflation of 1.7%.

The figures add to the growing pressure on household finances amid runaway inflation, currently at 9.1% in the year to May, alongside rising food, fuel and clothing costs.

Prime minister Boris Johnson and chancellor Rishi Sunak are facing calls to do more to help families cope with the squeeze.

The finance minister admitted there were "challenging times ahead of us" when speaking at the annual conference of the British Chambers of Commerce (BCC).

The business lobby group urged him to adopt a five-point plan to address rising cost challenges for business.

The ONS also confirmed a 0.8% growth in GDP in the first quarter. This marked a decline in growth from 1.3% in the previous three months, but means GDP remains 0.7% above the last quarter of 2019, before the pandemic struck.

However, the economy is expected to contract in the second quarter as consumers begin to cut spending.

Watch: How to save money on a low income

“Our latest estimate for economic growth in the first quarter is unrevised as a whole, showing the UK continued to recover from the pandemic,” Darren Morgan, director of economic statistics at the ONS, said.

“Both household incomes and spending rose in cash terms in the first quarter, leaving the rate of saving unchanged. However, once taking account of inflation, incomes fell again, for the fourth consecutive quarter.”

The more detailed GDP breakdown also shows that business investment dropped by 0.6% at the start of 2022, leaving it 9.2% below its pre-pandemic level.

There was continued weakness in capital expenditure on transport equipment during the quarter, due to supply chain constraints, particularly the continued semiconductor shortage.

Read more: UK business confidence at 15-month low as cost of living crisis bites

Martin Beck, at the EY Item Club, said: “The squeeze on household spending power has further to run, with the second quarter having seen both the energy price cap increase by more than 50% and a rise in personal taxation, while a further large rise in the energy price cap looking likely in October.

“So, with savings rates already below ‘normal’ levels, hopes of avoiding a consumer recession rest on households who accumulated ‘excess’ savings during the pandemic spending a good amount of those funds.”

Watch: How to prevent getting into debt