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Disposable income falls at the fastest rate since 2011

Laith Khalaf | 6 July 2017 | A A A

You’re about to read press releases, which we’ve written for media use only. They’re not intended for individual investors. They’re not personal advice and don’t include any recommendations.

No recommendation

You’re about to read press releases, which we’ve written for media use only. They’re not intended for individual investors. They’re not personal advice and don’t include any recommendations.

Media contact:

Laith Khalaf

Senior Analyst

Direct Line: 0117 980 9866

Mobile: 07977570820

Email: laith.khalaf@hl.co.uk

ONS data released today shows that household’s disposable income fell by 2% in the first quarter of this year, the fastest fall since 2011.

This was largely due to rising prices, however for the moment households seem unconcerned with the inflationary squeeze that is going on- the ONS reports that consumers’ perception of their own financial situation and of the economy at large improved in the first quarter of this year. The data suggests consumers have noticed rising prices, but are still in positive mood about their financial situation.

A weak pound has also helped to boost UK income from overseas investments, to the tune of £6.9 billion over the last year. However only some of this gain is attributable to UK households, some is attributable to business and governments. A fall in disposable income from rising prices suggests that overall a weaker pound has so far proved detrimental for household budgets by increasing expenditure to a greater extent than income.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

'The pressure is ratcheting up on UK households, but consumers don’t seem to be fully aware of the crunch that is underway. They have clocked rising prices, but as yet don’t see this has significantly dented their finances. They may well be right, inflation takes time to really bite into household budgets, but the risk is by the time it’s happened, it could be too late to do much about it.

Today’s data from the ONS will concern the Bank of England because despite weak wage growth and rising prices, consumers are continuing to spend by racking up more debt. That of course helps keep the wheels of the economy turning, but stores up problems for the future. Indeed the household savings ratio recently fell to a record low of 1.7%, which means that as a nation we aren’t putting much aside for a rainy day.

The main culprit for the consumer squeeze is a falling pound, which has hiked the cost of imported goods. There have been positive effects too for anyone who has income from overseas, or indeed an investment in the stock market, which has been given a boost by weaker sterling. This may in part be responsible for high levels of consumer confidence, as those with pensions and stocks and shares ISAs will have seen the value of their nest eggs rise considerably over the last year or so.

However overall today’s figures suggest UK consumers could be sleepwalking into financial difficulties, and will once again raise the question of whether the central bank should increase interest rates. A small rise of 0.25% probably won’t hurt household budgets too much, but might just serve to remind us that rates can go up as well as down.'


You’re about to read press releases, which we’ve written for media use only. They’re not intended for individual investors. They’re not personal advice and don’t include any recommendations.