Incomes forecast to rise from next year

Real disposable incomes are set to rise again in 2013 after four consecutive years of decline.

The latest report by economic forecasters Cebr suggests that incomes will continue to fall over the course of 2012, by 0.2 per cent, due to slow wage growth and high inflation. By 2013 this downward trend is expected to reverse.

Richer households can expect the most modest increases in income growth, by 0.7 per cent, while poorer households are forecast to see the most pronounced benefits as incomes rise by 1.5 per cent. Middle-income households are expected to see incomes rise by 1 per cent.

Cebr economist Daniel Solomon says: “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.

“Rises in poorer household’s incomes will be driven by growth in benefits payments and minimum wages. Respectively, these are inflation-linked and set by the Government based on advice from the Low Pay Commission. On the other hand, richer households will see wages rise more slowly than inflation and don’t have the Government to set them.”

Although richer households are set to benefit from a 5p reduction in the top income tax rate from April 2013, top-end pay and bonuses are will come under pressure over the year, leading to a less noticeable recovery.

A consequence of this rise in spending power means that sales volumes are now expected to rise by 2.5 per cent over the first half of 2013. High levels of household debt will remain a cause for concern and so sales will remain muted over the longer term and growth will slow to 1.7 per cent by the second quarter of 2014.