The UK has experienced its largest drop in disposable income in eight years, according to recent data. The Office for National Statistics (ONS) reported that households’ disposable income fell by 1.7% in the first quarter of 2021, marking the biggest decline since the fourth quarter of 2013.
The drop in disposable income can be attributed to a number of factors, including rising inflation, stagnant wage growth, and the ongoing economic impact of the COVID-19 pandemic. Inflation has been steadily increasing in recent months, with the Consumer Prices Index (CPI) rising to 2.5% in June, its highest level in almost three years. This has led to higher prices for goods and services, putting pressure on household budgets.
At the same time, wage growth has remained sluggish, with average weekly earnings increasing by just 7.3% in the year to May 2021. This is well below the rate of inflation, meaning that households are effectively seeing a decline in their real incomes. The pandemic has also had a significant impact on the economy, with many businesses struggling to stay afloat and unemployment remaining high.
The drop in disposable income is likely to have a significant impact on consumer spending, which is a key driver of economic growth. With households having less money to spend, businesses may struggle to generate the sales they need to stay afloat. This could lead to further job losses and economic uncertainty.
The government has introduced a number of measures to support households and businesses during the pandemic, including the furlough scheme and various business support grants. However, with the economy still facing significant challenges, it is unclear how effective these measures will be in the long term.
Overall, the drop in disposable income is a worrying sign for the UK economy. With inflation rising, wage growth stagnant, and the pandemic continuing to impact businesses and households, it is likely that many people will continue to struggle financially in the coming months. The government will need to take decisive action to support the economy and ensure that households have the resources they need to weather the storm.
