Disposable Incomes - The Big Squeeze Continues

A new report from the Resolution Foundation finds that real disposable incomes will continue to get squeezed throughout 2023 and into 2024.

UK household incomes are likely to fall by £2,000 a year with only those in the richest deciles expected to see any increase in real spending power. The Guardian covers this report here.

Steep increases in energy bills and higher taxes (up £700 this year for an average family) have dealt a severe blow. According to the Resolution Foundation, "2022 was a truly horrendous year, dominated by the arrival of double-digit inflation that drove a 3.3 per cent (or £800 per household) hit to real disposable incomes, the biggest annual fall in a century."

Nearly 3 million home-owners are likely to see their mortgage bills climb as fixed rate deals come to a close. The Financial Times has a report on this here and focuses especially on younger people who have stepped onto the property ladder.

In all, more than 1.4 million borrowers in the UK will face higher interest rates in 2023 as they come to renew their mortgage.

And people in the rented sector will also feel the effects of higher mortgage interest rates since landlords will also feel the pain of higher borrowing costs and might pass this on to tenants.

The Halifax reported last week that average house prices have now fallen for the fourth month in a row.

What happens to real disposable income has a big impact on forecasts for consumer spending which is the largest single component of aggregate demand.