First drop in real incomes for 20 years

Julian Harris
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DISPOSABLE income, allowing for inflation, fell for the first time since 1981 last year.

Real household income dropped by 0.8 per cent over 2010, after a 0.5 per cent fall in the final three months of the year, the Office for National Statistics (ONS) revealed yesterday.

The figures reveal the squeeze on living standards that Bank of England governor Mervyn King has described as the most severe since the 1920s.

Meanwhile, the ONS revised its GDP estimate for the fourth-quarter of 2010 to a 0.5 per cent contraction, up from the previous estimate of -0.6 per cent.

Ignoring the effects of December’s severe winter freeze, the economy stood still in the last three months of 2010, it said – an improvement on the previous calculations, which showed a slight contraction.

Nonetheless, the figures were seized upon by opposition chancellor Ed Balls. “The government is trying to cut further and faster than any other major economy in the world. Things are heading in the wrong direction,” Balls said.

Growth could be hit by impending government cuts, said Markit’s Chris Williamson, yet the economist added: “Note that the fourth-quarter decline in GDP occurred despite a boost from a 0.4 per cent increase in government expenditure.”

Business investment was revised up, from a previously estimated 2.5 per cent fall to a quarter-on-quarter stagnation, and 12.2 per cent annual increase, the ONS revealed.