Income per person ‘down 13% since 2008’

Personal incomes have fallen by 13.2 per cent on average in the past four years, according to new official data.

The Office for National Statistics Measuring National Wellbeing survey has found that the drop in real incomes is worse than expected, with the period of economic crisis including two recessions taking its toll.

It also noted that real household income per head has plunged, with this falling 2.9 per cent below its peak in the third quarter of 2009.

One key reason for this has been inflation, with the starkest contrast being provided by the third quarter of 2011.

During that period, real income per head only increased by 1.9 per cent on an annualised basis, whereas Consumer Prices Index (CPI) inflation was 5.2 per cent in September that year.

The ONS explained in its publication that such figures distinguish personal wealth from gross domestic product, with the two not intrinsically linked, as not all the wealth generated by production goes into people's pockets.

This is an issue that may be particularly relevant if the UK is revealed to be out of recession this week, as new economic growth may not necessarily translate into higher pay rates.

For people struggling with debt, this may be particularly bad news as falling real-terms incomes can make it harder to keep up with their monthly repayments.

Recent falls in the cost of living may soon be reversed, according to chief economist at the Alliance Trust Shona Dobbie.

She said of September's drop in the CPI rate to 2.2 per cent: "The fall in inflation rates was due largely to the gas and electricity prices increases in September 2011 now dropping out of the calculation of inflation, but with utility companies having already announced hefty price increases this reduction is expected to be short lived."

Posted by Paul Thacker