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Household budgets under historic pressure

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Disposable income amongst UK consumers is under greatest pressure now than in almost a century, it has been claimed.

According to a study by think-tank, the Centre for Economics and Business Research (CEBR), a combination of stubbornly rising inflation and subdued pay raises means that households are experiencing the single largest drop in income since 1921.

Hikes in food, fuel and energy prices have reduced the money available to the average British family by £910 compared with the situation in 2009.

CEBR forecasts suggest that household disposable income will slide by 2 per cent in 2011, way above the 0.8 per cent decline recorded in 2010 and the most significant fall since the end of the First World War.

The study has predicted that inflation will average 3.9 per cent this year, as raw material costs boom, while wages will creep up by a mere 1.9 per cent.

And the discomfort is likely to persist, the CEBR anticipates.

Douglas Williams, chief executive of the CEBR, said: “The virtually unprecedented peacetime squeeze on real household incomes, combined with more realistic forecasts for exports and investment growth means that GDP growth will be subdued for the next two or three years.”