Consumer spending power falls 15% in five years

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Date: Friday 04 Jul 2008

LONDON (ShareCast) - UK consumers are some 15% worse off now than they were five years ago, according to the latest survey for spending power by accountants Ernst & Young, which also suggested there is more pain to come.

E&Y's annual discretionary income study found that after household bills and tax, a typical family had less than 20% of its gross income remaining - compared with 28% in 2003, however the study does not include food costs, which have soared in the past two years.

"If we go one step further and factor in food price inflation it's clear that household budgets are under enormous strain," said Jason Gordon, director of retail at Ernst & Young.

"Add in the impact of falling house prices on the consumer's propensity to spend, and the consumer economy is undoubtedly on a knife-edge. Worryingly, though, the worst could be yet to come. If, as predicted, utility prices rise by as much as 40% later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times," he added.

E&Y estimates that monthly discretionary income for a typical household was now £772.79 - compared with £909.84 in 2003/04 with fixed household costs accounting for 53% of a typical household's gross income compared with 45% in 2003/04.

The survey's findings included rises in petrol prices of 29.4% since 2003/04, energy bills up by 110%, council tax up almost 25% to £114.50 per month for a band D property and average mortgage payments, based on a 25-year repayment loan at the standard variable rate, up by 78% to just under £735 a month.

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