UK real household disposable incomes fall for the first time: Economics Assignment, HWU, Malaysia

University Heriot-Watt University (HWU)
Subject Economics

Responses to rising prices in the UK and Kenya
Extract 1: UK real household disposable incomes fall for the first time in 30 years Real take home pay in the UK fell for the first time in three decades after prices rose faster than incomes in 2010, dealing a further blow to the prospect of an economic recovery. Less than a week after George Osborne, the Chancellor of the Exchequer, downgraded the UK’s growth forecasts for 2011 in his budget presentation, figures revealed that real household disposable incomes dropped by 0.8% in 2010, according to the Office for National Statistics (ONS).

The figures also showed that the decline is likely to accelerate to about 2.0% in 2011 and flatten in 2012 as the biggest public spending cuts since the Second World War take effect. “Rising commodity prices and the increase in sale taxes mean inflation is high and outpacing pay growth, putting a squeeze on real disposable income”, according to research group Capital Economics.

Last year’s decline in real disposable income is the first time since 1981, and is the biggest decline since 1977, when it fell by 2.2%, according to the ONS. In 2009, real disposable incomes rose by 1.1%.

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The repercussions of rising inflation and stagnant wages were further underlined with the release of a separate report showing the first decline in grocery sales, in real terms since July 2009. In the past month, the annual growth rate in average profits in the food retail sector has fallen by a third to 2.6%. A market research company said “there are now clear indications that value for money is driving retailer performance,” with discount stores such as Aidi and Lidi showing increases in sales of their own-label products despite declining real disposable incomes.

A senior economist at HIS Global Insight said: “I’m not surprised at all by these grocery figures, which carry on a general trend – an increasingly sorry tale across the retail sector. People are having their purchasing power squeezed by current inflation levels and limited wage growth,

while they are increasingly worried about their jobs. A lot of people can’t afford to spend so much, while those that can are becoming cautious.” Earlier this month, the UK chief executive of the supermarket firm Tesco said consumers were struggling because of the unrelenting rise of fuel prices, as well as other rising household costs.

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