Rise in household incomes predicted

Households will enjoy the first increase in real income next year for the first time since the credit crunch struck, according to research.

And it will be middle-income earners and poorer families that benefit the most, the Centre for Economics and Business Research (CEBR) said.

It predicts that families will enjoy a much-needed increase in income - after the impact of inflation - next year as stubbornly high inflation recedes and as it forecasts a welcome return to economic growth.

Real incomes for middle income and poorer households have fallen every year since the start of 2008 and are set to drop again this year by 0.2% due to slow wage growth and high inflation.

But this is set to change as the economy recovers, with the CEBR forecasting growth of 0.5% next year.

Its research suggests that real incomes will rise by 1% for middle-income households and by 1.5% for poorer households - with the richest households seeing a less impressive 0.7% rise. Similar rises are expected for 2014 and 2015, the CEBR said.

It believes the rich will see their incomes grow the slowest despite the 5p reduction in the top income tax rate, due for April 2013, because top-end pay and bonuses are expected to be squeezed in 2013 and some tax allowances are also being scaled back.

The boost to consumer spending power should signal good news for retailers, which have suffered as hard-up families cut back.

The CEBR said it expected retail sales volumes to rise by 2.5% over the year to mid 2013, having risen by a paltry 1.1% in the past year.

Daniel Solomon, CEBR economist, said: "There is finally a glimmer of light at the end of the tunnel for retailers, after four barren years. Conditions will still be tough, just slightly easier than before."