George Martinureports on the drop in disposable income for UK households and the effects this will have

Money fall

A 2% fall in disposable income in the first quarter of 2017 arguably highlights a growing cost of living crisis, data on economic wellbeing compiled by the Office for National Statistics has revealed.


The fall in real household disposable income (RHDI) is the largest since 2011 and was driven by an increased price of goods and services. This is in spite of rises to both GDP per capita (which rose by 1.3% compared with Quarter 1 in 2016), and net national disposable income (NNDI), which increased by 4.3% over the same period.


Unemployment remained at a relatively steady level, decreasing by 0.2 percentage points since Q4 in 2016. Inflation levels have increased by around 0.5% since the end of last year, with the annual rate of inflation now above 2%.


Perhaps surprisingly, there has been a slight improvement in the way consumers perceive their own financial situation, with an increase of 0.5% compared to measurement recorded in December 2016. This shows that the perceived decline in disposable income is perhaps negated by rises in other areas such as GDP.


Commenting on the statistics, Charles Cotton, reward adviser at the Chartered Institute of Personnel Development (CIPD), said:


“The 2% fall in real household disposable income should serve as a warning sign for government about the ongoing squeeze on living standards. The ONS is clear that increased prices are to blame for this fall, and rising inflation combined with flat-lining pay likely means this situation is going to get worse before it gets better.’


“Falling real pay will reduce employee financial well-being, which can have an impact on businesses in terms of reduced productivity as well as on employees, their families and society.’


“Employers need to look at their business strategy and how they design work and jobs to boost productivity and increase pay and benefits in a sustainable way. Government and employers need to invest properly in the skills and training of the workforce to boost productivity and help support workers who are currently seeing their living standards squeezed.”