Disposable incomes fall sharply

28 June 2011 Last updated at 16:45 GMT The squeeze on spending will add to caution about the need for an interest rate rise UK households have seen the biggest fall in disposable income for more than 30 years, official figures have shown.

The Office for National Statistics said that in the year to the end of March real incomes - adjusted for inflation - fell 2.7%, a fall not seen since 1977.

Higher taxes, domestic bills and inflation are all eating away at consumers' spending power.

Bank of England governor Sir Mervyn King told MPs there was a "substantial squeeze on real living standards".

According to the latest ONS data for the first three months of 2011 household spending fell 0.6%, its fastest quarterly decline since the second quarter of 2009.

This took the annual fall in household income to 2.7%, a squeeze on spending that was underlined on Tuesday by further gloom on the High Street.

'Uncomfortable'

Chocolate chain Thorntons said it would close some stores and Liverpool-based department store chain TJ Hughes said it was preparing to appoint administrators.

Sir Mervyn told the Commons Treasury Committee that "inflation is clearly uncomfortably high" and contributing to "a very substantial squeeze on real living standards".

He added: "This is the way in which we, as a country, are adjusting to the consequences of the financial crisis and the macroeconomic rebalancing that is necessary to get through that process.

"And it's going to be an uncomfortable period. There's no doubt about that," Sir Mervyn said.

The consumer prices measure of inflation is at a two-and-a-half year high of 4.5%, and may go higher before falling slowly from next year.

But further evidence that consumer spending is under pressure will bolster arguments from those economists and policymakers who believe interest rates should be kept on hold.

The Bank of England has kept interest rates at a record low of 0.5% since March 2009, despite inflation being above the Bank's 2% target for most of that time.

Despite expectations earlier this year that interest rates would rise by the summer to try to curb inflation, many experts now believe the prospect of an increase has now disappeared into 2012.

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UK jobless figure falls sharply

15 June 2011 Last updated at 12:22 GMT John Philpott from the Chartered Institute of Personnel and Development says unemployment may rise again

UK unemployment fell 88,000 in the three months to April this year to 2.43 million, the biggest drop since the summer of 2000, latest data shows.

The unemployment rate was 7.7%, according to the Office for National Statistics (ONS), down from 7.9% in the previous quarter.

However, the number of people claiming Jobseeker's Allowance in May rose by 19,600 to 1.49 million.

The rise was the biggest since July 2009, and larger than expected.

"The economy created more than half a million jobs over the last year," said BBC chief economics correspondent Hugh Pym.

"So even after the public sector shed just over 140,000 posts, total employment was still well ahead over twelve months."

The official unemployment figure - which is based on a survey - has been falling in recent months.

In contrast, the claimant count - which has now risen for the third month in a row - has been telling a much more downbeat story about the state of the jobs market.

However, analysts caution that some of the rise in the claimant count may be attributable to changes in benefits rules, which have seen many people move off other kinds of benefits onto the Jobseeker's Allowance.

Public versus private

The number of people who left unemployment during the quarter was almost matched by the number who entered new jobs, according to the latest ONS survey data.

Continue reading the main story

There is something puzzling - and potentially troubling - about the employment growth we've seen in the past year or so”

End Quote Stephanie Flanders Economics editor, BBC News The employment total increased by 80,000 to 29.24 million.

Employment minister Chris Grayling hailed the data as "very encouraging", and told the BBC that it showed the private sector was creating jobs much faster than the public sector was losing them.

Over the course of 12 months to the first quarter of this year, private sector employment rose by 520,000, while the public sector cut numbers by 143,000, leaving left total employment up by about 376,000.

But shadow employment minister Liam Byrne told the BBC: "When you look beneath the headlines, it turns out that most of those jobs were created last year, and the private sector is now creating jobs at a much slower pace.

"The number of vacancies is down, and we've still got three regions in Britain where unemployment is... going up quite significantly.

"A year and a half after the recession ended, that's just not good enough."

The unemployment rate fell most rapidly in Northern Ireland, down 0.8 percentage points to 7.2%, and Wales, down 0.7 percentage points to 7.9%.

In both Scotland and England, the rate fell only slightly, to 7.7%.

But within England there was considerable regional variation, with the North West, East and South West also all seeing more people out of work.

Chartered Institute of Personnel and Development chief economist John Philpott said underlying the jobs figures was "quite a sad story for many people and hard times still to come".

Continue reading the main story Hugh Pym Chief economics correspondent, BBC News

The economy created more than half a million jobs over the last year.

So even after the public sector shed just over 140,000 posts, total employment was still well ahead over twelve months.

That's the most attention-grabbing revelation in the welter of labour market statistics out today.

It adds weight to the argument that the private sector can generate enough jobs to take up the slack left by the retreating public sector.

There were a few wrinkles.

The number of people working part time because they could not find a full time job increased to just over 1.2 million, the highest since modern records began.

The number claiming Jobseeker's Allowance rose in May.

The headline figures today are welcome but nobody is ready yet to predict a sustained downturn in unemployment

Many were trading down to find jobs, while those in work were seeing their incomes squeezed, he added.

The level of cuts already seen "indicates that the scale of public sector job cuts is going to be quite substantial, because we haven't yet had the full impact of the government spending cuts", he said.

TUC head Brendan Barber agreed that the UK labour market was "still very fragile and a long way off the level of jobs we had before the recession".

Nonetheless, he welcomed the apparent fall in youth unemployment. The jobless rate among 16 to 24-year-olds fell from 20.7% to 19.4%, according to the ONS.

Subdued wages

The latest data also revealed that earnings growth slowed in the three months to April, with earnings excluding bonuses up just 2% on a year ago - its slowest rate since last August.

It follows figures on Tuesday showing that the UK inflation rate remained at 4.5% in May, and is expected to rise further, implying that the real purchasing power of average wages is being steadily eroded.

"The fact that workers can't push for higher wage increases in this difficult economic environment means that real wages are going to continue to struggle," said Peter Dixon, economist at Commerzbank.

Employment minister Chris Grayling: "The private sector is creating jobs much faster than the public sector is losing them"

"I think that is one factor which will act against a sharp pick up in consumer spending. And without a pick up in consumer spending, it's very difficult to see how we are going to get a major rally in [growth] going forward."

The pound fell half a cent against the dollar following the data release, to $1.63, while the FTSE 100 index also dropped slightly.

"The market is reacting to the claimant count number and the wages data which are weaker than expected," said Amit Kara at UBS.

Analysts say that the subdued rate of wage growth reduces the chance that the Bank of England will raise interest rates this year, which in turn makes the pound less attractive on currency markets.

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