Tuesday, December 18, 2012

Outlook bleak

The poor have seen their incomes squeezed more than the rich over the past year and households are reining in spending. A new survey commissioned by the Bank of England reveals found that 62 per cent of households in the lowest 25 per cent 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 25 per cent of earners who reported a drop in after-tax incomes.

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.

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. 5 per cent of households have fallen behind on bill repayments and a further 17 per cent described keeping up as a struggle.

Half  said they have been impacted by the Government's fiscal consolidation, blaming higher taxes, cuts to spending, and lower welfare benefits. Households containing a public sector worker were more nervous about losing their jobs than households with earners in the private sector.

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