ONS reveals hit to household income in 2012

Ben Southwood
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HOUSEHOLDS came in for a hammering in the first quarter of the year, as income, expenditure and saving all crashed, the Office for National Statistics said yesterday.

Household income collapsed to its lowest level since mid-2005, while expenditure fell to its second lowest level since mid-2003, the newest statistics showed, as the second dip of the recession hit home.

It took a quarterly fall of only 0.6 per cent in real household income per head to achieve this result, while spending crept down 0.2 per cent to bring it to this recent low.

“This highlights the pressure that [households] are under and reinforces belief that they are likely to be careful in their spending for some time to come,” said Howard Archer at IHS Global Insight.

The main factor behind shrinking real incomes was rapid price increases, which saw the consumer price index increase 5.2 per cent when inflation peaked in the year to September 2011, while staying above four per cent throughout 2011. Inflation has dipped closer to the Bank’s target through this year but this has only slowed the rate at which purchasing power is eroded – it cannot undo the damage that has already been done.

The retail prices index showed a 9.2 per cent price hike between January 2010 and the same month two years later, with monthly figures averaging over 4.9 per cent.

“The squeeze on households’ purchasing power was clearly a key factor,” claimed Archer, pointing to the shrink in consumption, although noting that there was an increase in the proportion of income consumed, as expenditure sank by a lower fraction than income.

Since expenditure fell less than income in the quarter, the saving ratio slumped 0.5 percentage points to 6.4 per cent, with gross saving down at around £17bn, compared to £18.3bn one quarter earlier.