Former government adviser and now economic adviser to Deloitte Roger Bootle has said that a typical UK household will see a fall in income of 2% this year.


In Deloitte's latest economic review 'Feeling the Pinch' [1] Roger Bootle said that this would be equivalent to £780 drop and represent the worst deterioration since 1972 and, if interests rise, it would be the worst since 1952.

He says that incomes are being squeezed more than they have for decades but 'the worst is yet to come'. This is because inflation is still on the up and may reach 5% with pay growth unable to match it 'any time soon' and he expects real earnings to fall by 1.5% this year.

He is also of the opinion that the net effect of recent tax and benefit changes will be to reduce household incomes despite the much trumpeted tax give-aways.

In a further gloomy prediction he also sees a private sector that will not be capable of soaking up workers shed from the public sector payroll by the cuts.

He then goes on to say that it will take until 2015 'or so' for incomes to get back to their 2009 peak levels.

Being unconvinced that the 'squeezed middle' will be harder hit than anyone else he says in the report 'The big picture is that pretty much all households face a further squeeze over the next year or two'.

Bootle expects consumer spending to fall by 1% this year (a revision on his previous 0.5% fall) and a further 0.5% next year. Caused in the main by 'the widening gap between inflation and households' nominal pay growth'.

Although inflation is way above target at present and could damage the recovery Bootle expects it to fall 'well below' target by the end of 2012, at which point real incomes can start their recovery boosted by reductions in taxes at the end of this parliament. So there is light at the end of his (lengthy) tunnel.

[1] www.deloitte.com/assets/Dcom-UnitedKingdom/Local%20Assets/Documents/Research/UK_Research_EconomicReviewQ22011.pdf

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