UK Household Incomes Are in The Longest-Ever Run of Declines

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UK household incomes are on their longest downward trend on record, as the nation’s cost of living crisis saps the spending power of British households.

Adjusted for inflation, disposable incomes dropped 0.2% in the first three months of the year, the Office for National Statistics said Thursday. That’s the fourth straight quarter of decline — the longest run since records began in 1955.

The figures are all the more worrying as they come before April’s tax and energy bill increases kicked in, dramatically worsening families’ financial situation. With inflation forecast to hit double digits later this year, and wages failing to keep up, the prospects for households looks increasingly bleak.

It total, incomes are 1.3% lower than a year earlier, the ONS said. The saving ratio, the proportion of income left unspent, was unchanged at 6.8%.

Incomes rose during the quarter, but prices rose more quickly, with an index of household expenditure up 5.5% from a year earlier — the biggest increase in 30 years. A 1.7% increase from the fourth quarter was largest since 2011. It was driven by increased borrowing costs and higher transport and fuel prices.

The fall in spending power highlights the strain on consumers struggling to keep up with soaring prices of everything from energy and food to motor fuel and clothing. That’s pushed inflation to a four decade high, and Prime Minister Boris Johnson is under mounting pressure to do more to help amid warnings that the economy is sliding into recession.

Gross domestic product grew 0.8% in the first quarter, the ONS confirmed. It left output 0.7% above pre-pandemic levels, a better performance than other G7 nations bar the US and Canada.

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However, output has been on a weakening path since January, and the Bank of England now expects a contraction in the second quarter as consumers tighten their belts.

How well the economy holds up will depend on the willingness of people to spend more of their income and draw down an estimated £200 billion of excess savings built up during the pandemic, when lockdowns restricted opportunities to spend.

If growth is expected to be patchy this year, the outlook for 2023 is for near stagnation, with the OECD predicting the UK will perform worse than every Group of 20 economy except sanctions-hit Russia.

Separate figures showed the current-account deficit, the gap between money coming into the U.K. and money leaving, widened sharply to £51.7 billion ($63 billion) in the first quarter. That equated to a 8.3% of GDP, a quarterly record.

The shift reflected a dramatic widening in the trade shortfall and a £17 billion swing from surplus to deficit in the balance on investment income.

The statistics office said the figures should be treated with caution because of post-Brexit changes to the way data on goods imports and foreign direct investment are collected, which are being investigated. In January, a survey-based system was replaced by customs declarations, meaning “early estimates are subject to higher levels of uncertainty than normal.”

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