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Creditfix LB 03-2017

Consumer Disposable Income Falling

Household disposable income is falling according to the latest figures released by the Office for National Statistics (ONS).

The average disposable income for each household, adjusted for inflation, fell by 1.4 per cent in the first quarter of this year.

The fall marks the third quarter in a row that disposable income has fallen, resulting in the longest continuous decline for 40 years, since the period up to the second quarter of 1977.

In turn, this has contributed to a fall of 1.7 per cent in the percentage of household income which is saved, resulting in the lowest savings ratio since records began more than 50 years ago.

The household disposable income measure is largely judged by wages but also includes the impact of self-employment income, pensions, benefits, and investments, as well as tax.

The fall measured in the first quarter of 2017 was also the largest since the first quarter of 2013.

Coupled with news from the Bank of England that consumer credit continues to grow, the data suggests households are choosing to ramp up credit card and overdraft borrowing and save less to fuel spending, rather than cutting back.

Concerns have already been expressed about the impact of rising inflation creating a fall in real term wages.

ONS figures also showed that growth in the UK economy slowed from 0.7 per cent in the final quarter of 2016 to just 0.2 per cent in the first quarter of 2017, and April data from the services sector that dominates economic output, covering many areas including hotels and restaurants showed a distinct slowing of growth.

Chief business economist at City data group IHS/Markit, Chris Williamson, commented: ‘The main drag seems to have come from weaker household spending growth, which dropped from 0.7% late last year ? which can in turn be at least partly linked to a third consecutive quarterly fall in real household disposable income – its worst run since the 1970s, according to official statisticians.’

The figures have cooled expectations of an interest rate rise from the current historical low of 0.25 per cent.

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