Source: TheGuardian
The amount of cash in Britons' pockets will fall this year for the third year running, according to the Centre for Economics and Business Research, a leading economic consultancy.
It said rising food, clothing and fuel prices coupled with "anaemic" pay rises would lead to another fall in households' disposable incomes. CEBR economists have revised down their real disposable income forecast for 2012 to a 0.2% decline, from a previous prediction of broadly flat on last year. That comes on top of a 1.3% fall in 2011.
"Wage growth is disappointingly anaemic, without much prospect of it picking up in the coming months," said Osman Ismail, lead author of the report. "Unemployment is still high, the double-dip recession has dented confidence, and plenty of public sector cuts are still to come." The latest figures show gross pay is rising at 0.6% – a full five percentage points below the equivalent figure five years ago.
The fall in spending power comes despite the latest official figures showing inflation fell to its lowest level in more than two years, with bargains on the high street and a post-Easter cut in air fares helping to keep price increases in check.
Figures from the Office for National Statistics showed that the cost of living as measured by the consumer prices index rose by 3% in the year to April, an unexpectedly sharp drop from the 3.5% annual rate recorded in March.
However, separate figures published on Monday will bolster retailers' hopes for a jubilee boost. BDO's high street sales tracker showed mid-tier retailers' like-for-like sales in May were up 1.3% on a year earlier. The accountancy firm said sunny weather had helped boost fashion sales by 1.2%. Homeware sales were up 4.2%.
But it warned: "Although the sunshine, diamond jubilee and Olympics will undoubtedly spark a feelgood factor, this is bound to be dampened by the continued economic uncertainty both here and abroad. In this type of environment, people will stick to what they know and that means trusted brands and attractive promotions."
The group tracks spending at non-food retailers with sales of up to £500m.
The CEBR, meanwhile, forecast the income squeeze to constrain growth in retail sales volumes to 1.2% over the year.
Much of the jubilee sales uplift is likely to merely have been moved forward from later months, it warned, and while it expected a net benefit from the Olympics, this would be broadly confined to London, with tourism potentially crowding out some of the retailing that would have otherwise occurred.
The Bank of England's monetary policy committee will meet on Wednesday and Thursday to set interest rates and decide whether to pump more money into the economy. Many economists expect more quantitative easing and possibly a rate cut from the historic low of 0.5%.
The Markit/CIPS Manufacturing Purchasing Managers' Index plunged to 45.9 in May from a downwardly revised 50.2 in April, its lowest reading since May 2009 and the second-steepest fall in the survey's 20-year history.
Analysts had expected a more modest dip below the 50-point mark that separates contraction from expansion, to 49.8.