Austerity Britain was laid bare today as the Bank of England revealed a picture of families suffering a huge loss of spending power and taking on second jobs to make ends meet.
Families have been hit with an average £552 fall in disposable income over the past year, according to the Bank's survey of 2,000 households. Workers in about half of all households surveyed by the Bank are putting in longer hours or taking on second jobs as a result of the income squeeze.
But things will get worse as the Chancellor George Osborne's spending cuts bite. "Fiscal consolidation is expected to have more of an impact in future than it has had over the past year," the Bank's latest quarterly report said.
"The main responses that households had taken was through the labour market ... the most common actions were to cut back on spending, work longer hours or take on a second job." The responses chime with official figures that revealed falling employment levels but a surprise 150,000 rise in total workforce jobs – signalling that people are taking on more part-time work and second jobs to pay the bills. Nearly a quarter of households had "no idea" what their income would be in a year while about a third were less certain about the state of their finances than a year ago.
The Bank's gloomy survey comes at the end of the worst year for Britain's household finances since the Second World War, with the Office for Budget Responsibility forecasting a record 2.3 per cent slide in disposable incomes.
At 4.8 per cent, the cost of living is far outstripping average wage growth of just 1.8 per cent, according to official figures. Leading economists are queuing up to predict a renewed slump in the UK, while the Bank believes that growth will be flat at best until the middle of next year. More than one in 10 households have struggled to pay housing costs during the past 12 months, although renters have suffered a bigger blow than owner-occupiers cushioned by rock-bottom interest rates.
A softer line on debts from lenders is easing the pressure on one in 10 mortgagees, although the soaring price of household bills and food is heaping financial pressure on the most hard-pressed families.
The report warned: "Some households were finding that they could not save as much due to lower income or the higher cost of essentials."
The Bank expects inflation to fall back sharply from its current high early next year as the impact of last January's VAT rise and energy-price increases recede. But consumer confidence is still low, feeding into declining high street sales and sapping the confidence of businesses to invest as a double-dip recession looms.