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The worst year for household finances since 1977

Ben Chu

The extent of the squeeze on incomes is beginning to loom large in the national accounts. The latest Q4 GDP estimate from the Office for National Statistics contains a finding that real household disposable incomes contracted by 1.2 per cent in 2011.

Andrew Goodwin, of Oxford Economics, has worked out that 2011 was, as a result, the worst year for household finances since 1977, when James Callaghan was prime minister. And he’s compiled this chart to demonstrate it:

incomes The worst year for household finances since 1977

Goodwin expects the situation to improve somewhat this year as inflation recedes, but warns that this is dependent on oil prices falling back. We had all better hope that this happens. Consumer spending still has a big job to do in hauling us back to growth according to the Office for Budget Responsibility, as this chart from David Owen at Jefferies nicely demonstrates:

Untitled 114 The worst year for household finances since 1977

That line disappearing below 0 on the Y axis represents the savings rate falling. Yet it is hard to see people opening their wallets if prices remain high and real incomes keep getting squeezed.

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