Squeeze on income shows little easing

Tim Wallace
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CUTS to tax credits are set to strain the UK’s “squeezed middle” even further, with wages continuing to fall and mortgages beyond the reach of many under-35s, a report from the Resolution Foundation will say today.

The Lloyds TSB spending power report, also out today, reveals spending on essentials, like utilities, rose 4.6 per cent on the year to December – the fastest rate of inflation for 18 months.

However, data from Markit suggests the long squeeze on incomes is beginning to ease.

The Resolution Foundation said real incomes were down 4.2 per cent, or £650 on average, in the last year, with changes to tax credits set to cut incomes by a further £500m.

The think-tank also revealed that the proportion of under-35s renting, rather than owning a house, has risen from 28 per cent to 47 per cent over the last six years, with the number owning a house falling by one-third.

Meanwhile Lloyds reports that utilities bills increased by 9.3 per cent in the 12 months to December and overall real incomes fell by 0.8 per cent in the year.

The bank’s study also shows saving intentions are rising, with 52 per cent of those with surplus income looking to save it in November, rising to 59 per cent in December.

Similarly, 30 per cent were looking to pay down debts in December, compared with 25 per cent the month before.

A slight positive note comes from Markit’s household finance index, which hit a 13-month high in January.

The index rose to 36.4, up from 34.3 in December. As any figure below 50 represents a decline, the data shows finances worsened at their slowest pace in 13 months.

The index of future expectations also improved.

Around 42 per cent expect their finances to worsen in the next 12 months, and 26 per cent anticipate an improvement.

Such proportions take the resulting index up to 42, from 37.1 in December – the highest level for four months.

However, those in the lowest income categories are at their most pessimistic for two years.