Disposable incomes at nine-year low

Real disposable incomes dropped to their lowest levels in nine years in the first quarter of this year as families were squeezed by high prices and sluggish wage growth, official figures have shown.

Taking inflation into account, take home income dropped by 1% on the quarter to reach £273 a week, the lowest level since 2003, said an Office for National Statistics (ONS) study.

Real incomes per head also dropped by 0.6% in the first three months of this year compared with the fourth quarter of 2011 to £4,444 across the quarter, the lowest figure since the summer of 2005, said the economic position of households study.

The ONS said that the erosion in people's budgets was "primarily due to prices going up at an increasing rate over most of the period", as inflation pushed up the cost of regular outgoings such as energy bills.

High unemployment and a tough jobs market continues to exert pressure on people's spending power. Low wage rises meant that salary increases contributed a "relatively small" amount to income growth, the study said.

Recent studies have shown cautious consumers' reluctance to take out new loans amid the ongoing economic uncertainty, with a preference to pay down their debts.

Bank of England figures published on Monday showed that the number of mortgage approvals plunged to an 18-month low last month.

Lenders have also become more cautious and have been toughening their borrowing criteria, making it harder for people seen as more "risky" to take out loans.

Squeezed budgets have also affected people's ability to save. The household saving ratio, which reflects the amount of saving that households make in relation to their available resources, stood at 6.4%, a fall of 0.5 percentage points from when the last quarterly study was carried out.

Howard Archer, chief UK and European economist for IHS Global Insight, said that despite signs that some of the pressure on households is lifting with inflation easing off, the figures suggest people are likely to keep a tight rein on their spending.