Financial services firm Deloitte has warned that UK households could face a drop of nearly £800 in disposable income over the next 12 months.
A report by the firm says that the average household in the country could experience a drop of £780 this year and warns disposable incomes may not return to their 2009 peak until 2015. Government cuts, rising inflation and soaring commodity prices are believed to be the main factors behind the grim prediction.
As part of the report, Deloitte also said that real earnings are “all but certain” to fall for the fourth consecutive year this year, with real earnings not expected to rise again until the latter half of 2012.
The firm’s chief economic advisor Roger Bootle predicts that spending would drop by 1% in 2011 and 0.5% in 2012 as rising costs cause consumers to cut back on spending. He added that while many believe increasing interest rates would be the ideal solution to ease inflation, he believes it would be a huge mistake. He warned that if interest rates were to increase, household conditions would sink to their worst levels in 58 years.
“Given high debt and given all the other pressures on consumers and given the state of the housing market, I think even a small increase in interest rates could prove to be very dangerous,” he commented.
The warnings come as new figures show that High Street sales rose by as much as 45% for some retailers in April. While the statics are positive for most retailers, the CBI warned that the figures remain poor for the time of year.
“Despite slightly better year-on-year sales growth in April, this survey shows things are far from rosy on the High Street,” commented CBI chief economic advisor Ian McCafferty.
The body added that it expected sales to remain sluggish throughout May and warned that a continued lack of consumer spending could put the economic recovery at serious risk.