The poor have seen their incomes squeezed more than the rich over the past year and households are reining in spending as they grapple with uncomfortably large debt burdens, a new survey commissioned by the Bank of England reveals today.
The survey, published in the Bank's latest Quarterly Bulletin, found 62 per cent of households in the lowest quartile of the income distribution said that their after-tax income declined over the past year.
That contrasted with 48 per cent of those in the top quartile of earners who reported a drop in after-tax incomes. The survey, conducted for the Bank by NMG Consulting, said average monthly pre-tax incomes fell by £43 in 2012 to £2,627. Modest wage increases over the year were eroded by increases in VAT, higher energy prices and more expensive imports. And CPI inflation of 2.2 per cent implied an even steeper drop in real incomes.
The survey, conducted for the Bank by NMG, also showed that 12 per cent of households were "very concerned" about the borrowing levels, while a further third said they are "somewhat concerned". Those with high loan-to-value mortgages were the most nervous about borrowing levels.
Thirty five per cent of households have cut back on their spending in response to worries about debt. Spending by households accounts for around 75 per cent of GDP, meaning retrenchment or falls in disposable income are bad news for the economy.
Services data from the Office for National Statistics for October will be released on Friday. City analysts have said that a contraction in output will increase the chances of the economy contracting in the final quarter of 2013 and entering a "trip dip recession".
The survey found 5 per cent of households have fallen behind on bill repayments and a further 17 per cent described keeping up as a struggle. The survey reported that households are saving an average of £185 per month, or 7 per cent of their pre-tax income, with many households paying down their borrowings at a quicker rate than others.
Twenty eight per cent of households said they plan to increase savings in 2013, with prospective homebuyers particularly pessimistic, the BoE report found.Reuse content