Nearly half of families are worried about debts as toxic combination of runaway inflation and low wage growth means they struggle to make ends meetAverage household now 22 a month worse off than a year agoHouseholds are cutting spending, looking for extra work or asking for helpBank of England says consumer spending has been 'flat' since end of 2009
00:04 GMT, 18 December 2012
Nearly half of all households in Britain are worried about their debts as the squeeze on family finances intensifies, the Bank of England warns today.
A toxic combination of runaway inflation and low wage growth has left millions struggling to make ends meet in the run up to Christmas.
The average household is now 22 a month worse off than they were a year ago, according to a study from the Bank, blowing a 264 hole in annual family budgets.
Concern: Low wage growth and runaway inflation have left millions worried about their finances
Bank governor Sir Mervyn King has described it as the biggest squeeze on incomes since the 1920s.
The Bank’s quarterly bulletin, published today, shows 11.25million households in Britain are now ‘very concerned’ or ‘somewhat concerned’ about their debts.
Many have cut their spending, looked for extra work or even asked for financial help from relatives as the longest downturn for a century takes its toll.
‘Incomes have been broadly flat over the past year and rises in prices will have eroded the spending power of that income,’ the study finds.
‘Households on low incomes are more likely to have seen their income fall and a number of households remain uncertain about their future incomes.’
Household spending accounts for two-thirds of economic output in Britain and the pressure on family finances has held back the recovery.
Tough times: The Bank's governor Sir Mervyn King has described the situation as the biggest squeeze on incomes since the 1920s
The Bank report says consumer spending fell 6 per cent in the 2008 and 2009 recession and ‘has been broadly flat since the end of 2009’.
The typical disposable income – after tax, national insurance, housing costs, bills and loan repayments – fell from 699 a month in 2011 to 692 a month this year, according to the report.
But after inflation is taken into account, the average household is now 22 a month worse off than it was 12 months ago.
Real incomes, once inflation is taken into account, are now only just above where they were at the end of 2007.
Modest wage growth has been eroded by the soaring cost of living, driven in part by the rise in VAT and higher energy bills.
The five-year hit has left many worried about their financial security.
The Bank report finds that 12 per cent of people are ‘very concerned’ about high levels of debt and a further third of the population is ‘somewhat concerned’ – a total of 45 per cent of households or 11.25million.
Around 5 per cent of households, or 1.25million, have fallen behind with at least some bills and a further 17 per cent or 4.25million say it is a ‘constant struggle’ to keep up.
The report says 35 per cent of households in Britain, or 8.75million, have cut spending while 4.5 per cent or just over 1.1million have asked for financial help from relatives.
The Government’s efforts to restore the health of the country’s finances has also taken a heavy toll, with 48 per cent complaining that they have been affected by austerity, down slightly from 52 per cent last year.
The Bank's report says consumer spending fell six per cent in the 2008 and 2009 recession and has remained flat since