UK inequality narrows but many working age Britons lose out, ONS says

LONDON, Jan 10 (Reuters) - Income inequality in Britain narrowed in the 2015-16 financial year as poorer families got help from low inflation and retirees gained from generous pensions, but many people of working age lost out, official data showed on Tuesday.

The median disposable income - the amount of money available for spending after direct taxes - rose for the poorest fifth of households by 5.1 percent, compared with a drop of 1.9 percent for the richest fifth, the Office for National Statistics said.

That continued a trend of falling income from employment for the richest Britons, with rising wages and employment for the poorest, the ONS said.

Overall household disposable income rose to a median 26,332 pounds ($31,991) in the 12 months to last March, up 564 pounds from 2014/15.

But much of this increase was driven by retired households, who have benefited from rising private pension income, as well as generous state pension increases that lawmakers have criticised as unsustainable.

Disposable incomes for retired households are now 13 percent higher than they were before the financial crisis. But for working-age households, they are down 1.2 percent, underscoring the drop in living standards facing Prime Minister Theresa May.

May vowed to help "just about managing" families when she took office in July, after years of depressed wage growth helped to fuel populist anger that culminated in the vote to leave the European Union.

"Household incomes are above their pre-downturn peak overall, but not everyone is better off," said Claudia Wells, head of household income and expenditure analysis at the ONS.

Disposable incomes for middle-income working age households increased by only 1.2 percent in 2015-16.

Britain's finance ministry said in a statement it was helping working families by raising the threshold at which Britons start paying income tax and increasing the minimum wage.

Britain's labour market strengthened in 2015-16, with employment rising to record levels and wage growth recovering to its highest since the financial crisis.

This year looks likely to be tougher. The pound's 15 percent drop since June's Brexit vote is already causing higher inflation, which looks set to eat into the spending power of households.

"With (Other OTC: WWTH - news) employment plateauing, productivity growth refusing to budge and inflation rising, the risk is that this mini boom won't continue," said Matt Whittaker, chief economist at the Resolution Foundation.

A survey published on Tuesday by the Recruitment and Employment Confederation showed starting salaries for permanent staff rose at the slowest pace in five months, in line with a declining trend over the last year. ($1 = 0.8231 pounds) (Reporting by Andy Bruce, editing by Larry King)