For the average UK household, this will translate to less money in their pockets. The average household disposable income across the UK was £35,300 in 2016. In 2017 we expect this to decline by £500 to £34,800.
The dynamics of higher prices and only marginally rising earnings will also be evident in the savings ratio. In 2017 we expect the average household to save just 4.0% of their disposable income. This is below the 2016 savings rate of 5.2% and the lowest annual value since comparable records began in 1963. Beyond 2017 we expect the saving rate to start rising gradually, however with interest rates set to stay low there is less of an investment to save, meaning that we are unlikely to see rates of above 5% in the medium term.
Nina Skero, Managing Economist at Cebr, said, “2017 is set to be a challenging year for household finances. Inflation is on the rise and it is particularly worrying that essentials such as housing, transport and food are getting more expensive. These concerns are compounded by the fact that despite record employment, wage growth remains exceptionally weak.”
“For the moment consumer confidence as measured by the YouGov/Cebr Consumer Confidence Index remains resilient, but below pre-Brexit levels. This optimism, however, is under threat as consumers start to notice rising prices. With fewer pounds left over for discretionary spending, households will approach purchases with greater caution. This creates a challenge for the economy as a whole, given that consumer spending has been a key source of growth in recent years”
Figure 1: CPIH annual inflation and year-on-year change in average total earnings, UK
NB The 2017 figures are a Cebr forecast
Figure 2: Households saving ratio, seasonally adjusted, UK
NB The 2017 figure is a Cebr forecast