Income ‘falling again in real terms’

UK consumers enjoyed a few months of rising real-term incomes over the summer, but that came to an end in September, according to a new study.

A Lloyds TSB study found last month to be a bad one for consumers whose budgets are under pressure, with real discretionary spending power dipping by 0.9 per cent – the equivalent of £8 a month less to spend on non-essential items on average.

The slow rate of income growth was highlighted as a key factor in the situation, as annual growth was down to 1.7 per cent, the lowest since December 2010. In real terms annual income growth was down 1.2 per cent.

Chief economist at Lloyds TSB Patrick Foley said: "Despite the volatility in the data, it is clear that the underlying trend in real incomes is negative despite the fall in inflation from last year's high.

"I expect inflation to fall only slightly further over the coming months so any improvement in the situation will need to be driven by growth in incomes and this will depend on the wider economy."

Such a situation may make debt problems worse for those struggling the most and seeking expert advice could be a vital next step for people in such a tough situation.

However, debt consolidation measures might be taking effect elsewhere, as the survey shows that despite sentiment towards the economic outlook declining, the personal finance situation is apparently getting better.

On the one hand, 45 per cent agreed the country's economic prospects are not good, up from 42 per cent in August.

However, six per cent fewer said their money situation is tight or likely to be insufficient to cover their outgoings than a year ago.

While consumer prices index inflation has halved over the past year, the cost of living could be set for another jump, due to energy firms hiking their prices.

Last week saw British Gas and nPower announcing price rises, following a previous announcement by Scottish and Southern Electricity that its charges will be going up this month.

Other major energy firms are widely expected to follow suit with their own price increases.

By James Francis