Worst financial squeeze hits Britain

Mon Apr 11, 2011 11:10

A new study has revealed that the UK families' finances are experiencing the biggest squeeze in 90 years amid increasing inflation and weak earnings growth.


The study commissioned by the Center for Economics and Business Research (CEBR) found that families are on average £910 worse off than they were two years ago.

It said the squeeze - which is considered the worst in peacetime since 1921- is set to continue with a 2 percent fall in household disposable income this year.
The CEBR said public spending cuts was a 'minor element' in the troubling financial conditions, with the rising cost of oil, food, cotton and metals being bigger contributory factors, the Sunday Times reported.

The fall in disposable income is comparable with the savage post-World War One recession which lasted between 1919 and 1921, as a result of a collapse in manufacturing and international trade.

The findings also show the fall in household disposable income is sharper than in the 1930s depression.

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

Meanwhile, inflation hit a 30-month high of 4.6 percent in March, increasing pressure on already stretched families, British media reported.

According to economists the cost of living will be rising across Britain, further increasing the inflation rate to 4.9 percent in the second quarter.

“We expect higher oil and commodity prices once again to have had a significant upward impact on consumer price inflation in March”, said Howard Archer, chief UK economist of think tank Global Insight.

“In addition, more companies could have passed on the value added tax increase from 17.5 per cent to 20 per cent that was enacted in early January”, Archer said.

MOL/HE