STUBBORNLY high inflation will squeeze Britons’ purse strings even tighter this year, according to a leading group of economists.
Rising energy and commodity prices mean that disposable incomes will fall in real terms for the third year in a row, the Centre for Economics and Business Research (CEBR) will warn today.
Inflation is likely to remain above the Bank of England’s two per cent target by the end of 2012 – even though it has been above this goal since November 2009.
Bank governor Sir Mervyn King (pictured) has said he expects inflation to fall to “around the target” later this year, yet CEBR’s research shows that international price pressures could see it missing the target into 2013.
Households have been subjected to falling real disposable income in the wake of the financial crisis – and the new report adds that high earners have been hit harder than people on lower incomes.
The top two socioeconomic groups – mainly managers – have nearly 10 per cent less disposable cash than in 2008, after inflation, the CEBR calculates.
Higher taxes and falling bonuses have knocked incomes of people in the top brackets, the report says. The bottom two socioeconomic groups have seen a 5.5 per cent fall in their real disposable income.
Lower income groups can also expect their spare cash to recover at a faster rate than top earners.
And while the fall in real disposable income should be less stark next year, the level of spare cash per household will continue to fall.
“Real disposable income per household is forecast to fall by 1.1 per cent in 2012 and one per cent in 2013 because of rising numbers of households,” the report says. “By 2013, real disposable income per household in the UK is forecast to be 5.7 per cent lower than in 2007.”
The report cites international tensions and ultra-loose monetary policy as the forces behind lingering price pressures.
“If oil and commodity prices stay higher – linked to the political uncertainty in the Middle East and the effects of quantitative easing across the globe – inflation could be around 2.5 per cent in quarter four of 2012,” it says.