Bad news for retail as UK's real household disposable incomes to drop in double-digits

By

Nigel TAYLOR

Published
Sep 1, 2022

There are yet more calls for the new UK prime minister to act decisively on the cost-of-living crisss as a new report shows real earnings are falling at their fastest rate since 1997.

This means by the middle of next year real pay growth since 2003 will be wiped out, a new report by the Resolution Foundation claims. And that will be bad news for fashion retailers as consumers prioritise food and energy payments over products deemed non-essential.

The body calls for “radical policy action” including an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October's inflation rate.

"The new prime minister also needs to improve Britain's longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth," it added.

The report claims the 10% fall in disposable income will be equivalent to £3,000 for a typical household, sending the number of people in absolute poverty up by three million to 14 million.

The report took into account the latest forecasts from the Bank of England and the £30 billion of policy support announced since March.

Britain's rate of inflation hit a 40-year high in July, the latest figure available reaching just over 10% on an annual basis.

One of the major factors driving the increase is energy bills, which will rise again by around 80% from October when the latest price cap comes into effect.

The report said that further support to help people pay energy bills, through a social tariff, universal bill reduction, price cap, or further targeted support, would cost tens of billions of pounds but would "radically reduce" the problem facing low and middle-income households.

Lalitha Try, researcher at the Resolution Foundation, said that high inflation is likely to stay with us for much of next year, meaning the outlook for living standards is "frankly terrifying".

"Typical households are on course to see their real incomes fall by £3,000 over the next two years -- the biggest squeeze in at least a century -- while three million extra people could fall into absolute poverty. No responsible government could accept such an outlook, so radical policy action is required to address it."