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Household incomes fell in real terms for a fourth consecutive quarter

   News / 01 Jul 2022

Published: 01 July 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

Household incomes fell in real terms for a fourth consecutive quarter at the start of this year, marking the longest run of declines since 1955, the Office for National Statistics (ONS) said yesterday. Although nominal household income grew by 1.5% during the period, it was offset by quarterly household inflation of 1.7%, hence a 0.2% fall in real household disposable incomes in the first three months of 2022. This means earnings are 1.3% lower than a year ago, even before April’s energy bills and taxes rise began.
Chancellor Rishi Sunak admitted there are "challenging times ahead of us" after the ONS figures above were released. Speaking at the annual conference of the British Chambers of Commerce(BCC), the chancellor praised the resilience that business had shown since the pandemic but gave nothing away in terms of any possible future support.
Continued financial gloom and fears of recession led global stock markets to tumble again yesterday. The S&P 500 was down around 1%, a dip which contributed to a total fall of 20.6% in the last six months, the worst first half of the year since 1970. In the last six months. In Japan, the Nikkei fell 1.5% while the Hang Seng shed 0.5% in Hong Kong. The Shanghai Composite, however, rose 1.1%. European stock markets dipped well into the red: in London, the FTSE 100 fell 2%, as did the CAC in Paris. In Germany the DAX was also 1.5% lower. The FTSE 100 fall contributed to the biggest monthly loss since March 2020, and its first quarterly loss since September in the same year. "If the US Federal Reserve continues hiking rates the stock market will react quite negatively," Dan Wang, chief economist at Hang Seng Bank China, told the BBC. Shane Oliver at AMP Capital also told the broadcaster: "Shares are likely to see continued short-term volatility as central banks continue to tighten to combat high inflation, the war in Ukraine continues and fears of recession remain high."
Meanwhile, the ONS has confirmed a 0.8% growth in GDP in the first quarter. This marked a decline in growth from 1.3% in the previous three months, but means GDP remains 0.7% above the last quarter of 2019, before the pandemic. However, a more detailed GDP breakdown also shows that business investment dropped by 0.6% at the start of 2022, leaving it 9.2% below its pre-pandemic level.
Almost two million more people are paying higher and additional rates of tax in the UK since 2019, HM Revenue and Customs (HMRC) says. The number of people paying 40% or 45% tax has risen from 4.25m to more than 6.1m workers, its official figures show. The Office for Budget Responsibility has previously estimated that by 2026 the government's tax take in relation to the size of the economy would rise to its highest since the 1940s.
The average cost of mortgage repayments could climb by around £2,500 a year if interest rates keep going up, according to a report by property site Zoopla. Buyers have already seen an average increase in annual payments of £879, Zoopla says, as average 5-year fixed mortgage rates now stand at 3.37%, up from 2.64% in December. These figures are based on an average £250,000 loan with a 25% deposit. Zoopla says it believes 5-year mortgage rates are likely to continue to rise to around 4.62% – a level last seen in April 2010 – hence the additional £2,500 annual cost compared to December 2021. This scenario works on an increase in the base interest rates to 2.5%. The base rate stands currently at 1.25%, but the Bank of England has said it is ready to “act more aggressively” to rein in inflation by increasing the base rate, and earlier this week governor Andrew Bailey did not rule out raising rates by 50 basis point at the next monthly monetary policy committee meeting. Steve Hughes, CEO of the Coventry Building Society, told the BBC: "If interest rates did rise 2-3% then you could see a slight decline of house prices of between zero and 5%.”
The Nationwide says there are signs that UK house prices are already slowing, despite hitting a new record high of £271,613 in June. The annual rate of house price growth eased back for the third month in a row, to 10.7% from 11.2% in May, despite a 0.3% rise month-on-month, the mortgage lender said. The average house price has now increased by over £26,000 in the past year. The South West overtook Wales as strongest performing region – prices jumped 14.7% year-on-year in the last quarter - while London remained weakest, with annual price growth in the second quarter slowing to 6% for an average £540,399, down from 7.4% previously. Nationwide’s chief economist Robert Gardner said: "There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer enquiries”.
UK car production has risen for the first time in a year. 62,284 units left factory gates in May, up 13.3% compared with April, and the first monthly rise since June 2021. Production of full-electric cars jumped 108% to 4,525 units, according to the Society of Motor Manufacturers and Traders (SMMT). Overall this year, however, output has decreased by 23%, a fall the SMMT attributes mostly to the global shortage of semiconductor chips, as well as rising costs and disruption caused by Russia's invasion of Ukraine. Production for overseas and domestic markets increased in May by 8.9% and 39.5% respectively. Exports accounted for 82.1% of all new cars built with close to six in ten of them heading to the EU. Shipments to the US fell by 35.4%.
Motoring organisations the AA and the RAC are accusing petrol retailers of abusing their "essential" status through rip-off prices following data released by the Department for Business, Energy and Industrial Strategy (BEIS) showing that petrol sales are currently at 94% of normal levels.  Head of roads policy at the AA, Jack Couzens, told Sky News: "This is an astounding statistic…There are businesses across UK retail and commerce that would give their right arm to have 94% sales in a cost of living crisis. The fuel trade should consider itself very lucky and treat its customers more fairly." That sentiment was echoed by the RAC which is demanding a 5p a litre cut to unleaded costs at the pumps to more fairly reflect the wholesale costs retailers are paying for their stocks. Fuel price spokesman Simon Williams said: “So-called 'rocket and feather' pricing - where retailers are quick to put up their prices in a rising market but slow to reduce them in a falling one - appears to be well and truly alive, much to the detriment of every driver who depends on their car. Major retailers really need to cut their prices now and, going forwards, they need to reduce them as soon as wholesale prices drop to give drivers confidence they're not being taken for a ride every time they fill up."
There is still chaos at Heathrow after the airport asked airlines to remove 30 flights from yesterday morning's schedule because it was expecting more passenger numbers than it can cope with. Although this means 98% of flights still ran, the rare “schedule intervention” meant passengers did not find out their flights were cancelled until they arrived at the UK’s busiest airport. This morning, passengers either arriving or departing from the airport are still experiencing delays, and transit passengers are stuck overseas, in many cases facing long flight diversions or having to seek alternative routes into the UK. Transport Secretary Grant Shapps said there is “no excuse for widespread disruption” and holidaymakers “deserve certainty,” as he published a 22-point action plan to prevent flight disruption. It includes encouraging airlines to make sure their schedule are “deliverable”, an amnesty on slot rules and permitting new aviation workers to begin training before passing security checks. A new passenger charter is also due to be published, with a “one-stop guide” informing travellers of their rights and what they can expect from airports and airlines when flying. Last week however, staff at British Airwaysvoted in favour of strike action, meaning more travel misery ahead.
Figures showing the damage to the economy by last week’s rail strikes – the widest in 20 years - have been announced by the Office for National Statistics(ONS). Consumer behaviour indicators showed that trips to transit stations fell 6% in the week to 26 June, compared to the previous week, while the number of transactions at most Pret A Manger stores also declined, and the average number of diners in food outlets fell 16 percentage points to 111% of pre-pandemic levels. There was also a 1% fall in traffic camera activity for pedestrians and cyclists in London. Retail and recreation, and grocery and pharmacy visits were unchanged from the previous week.
BT workers are the latest to threaten strike action over pay. 30,000 Openreach engineers and 9,000 BT call centre workers were balloted and overwhelmingly backed industrial action, the Communication Workers Union (CWU) said. General secretary Dave Ward said BT now faced its first national strike since it was privatised in the 1980s, adding that he expected BT to offer a "significantly improved" pay rise by next week or strike dates will be set. The potential strike action would have a serious effect on the roll-out of broadband and could cause big problems for those working from home, the CWU warned. BT said it was disappointed and would "work to keep our customers and the country connected" if staff walked out.
Barclays has announced a pay rise for 35,000 of its lower-paid UK staff in customer-facing, branch and junior support roles to help with the cost-of-living crisis. With effect from 1 August, they will receive a £1,200 increase to their annual pensionable salary. Barclays said the pay rise brings forward part of the annual pay review that would normally have come into effect in March next year.
More than 500 sub-postmasters wrongly suspected or accused of taking money by the Post Office are to get an interim payment worth around £40,000 each, the BBC reports. All were the victims of faulty software which made it look like money had gone inexplicably missing from their branches. Despite winning £58m in compensation in 2019, the group's funds were swallowed up due to a "no win, no fee" agreement, leaving many with no financial resources and excluded from other Post Office compensation schemes. Postal Affairs Minister Paul Scully now says an interim payment of compensation totalling £19.5m will be paid until a final agreement is reached. Some of this group had been given wrongful criminal convictions and so are entitled to separate higher payouts, but the majority who lost their jobs, their businesses and their livelihoods have so far been excluded, the BBC says.
Aston Martin shares fell as much as 14% yesterday as rumours circulated that the luxury carmaker is seeking in excess of £200m to shore up its finances as soon as possible. According to Autocar, a company linked to a Saudi Arabian investment fund, and another linked to a fund on the West Coast of America are the two main contenders for the funding. The firm, established in 1913, currently has a debt pile of around £1.2bn and its pre-tax losses more than doubled to £111m in the first quarter of this year, despite sales rising 4%. It has been declared bankrupt seven times in the past and is currently going through a turnaround plan under billionaire owner Lawrence Stroll, who rescued the firm from bankruptcy in 2020. An Aston Martin spokesman told Yahoo Finance that it “does not comment on rumours or speculation”.
Julie Palmer, Retail Expert at Begbies Traynor told the BBC she expects more businesses to go bust than usual in the coming months, saying: "I think those zombie businesses are now beginning to fail and I think that will increase significantly".
EY’s 780 UK partners will be briefed next week on the ‘big four’ accountants plan to pursue an $80bn (£66bn) break-up. Sky News has heard there will be a summit at a central London hotel where the leadership team will outline the next steps in the process as well as reveal details of the firm's growth plans for the next financial year, and updates on "strategic" initiatives. EY intends to carve out its consulting business from its audit firm in the belief that by removing conflicts of interest between the two sides, each would be more highly valued on a standalone basis. The audit firm would continue to be owned by its partners, while the consulting business - which provides advice to companies on areas such as financial restructuring, deal-making, tax and technology transformation - would seek a listing on a major international stock exchange. The move will require the backing of partners, and audit regulators around the world.
The Halifax has said customers who object to its staff name badges featuring the wearer's pronouns “are welcome close their accounts”. In a Twitter post, Halifax showed a picture of a name badge saying "Gemma (she/her/hers)" which was subtitled “Pronouns matter”. This led to a backlash by some Twitter users, to which Halifax responded, saying: "We strive for inclusion, equality and quite simply, in doing what's right. If you disagree with our values, you're welcome to close your account." Rival bank HSBCtweeted: "We stand with and support any bank or organisation that joins us in taking this positive step forward for equality and inclusion. It's vital that everyone can be themselves in the workplace."
News reported here yesterday that Unilever has reversed an earlier decision to stop selling Ben & Jerry's ice cream throughout Israel and the occupied West Bank, has not gone down well with Ben & Jerry’s itself. The ice cream company said on its Twitter account: "We are aware of the Unilever announcement. While our parent company has taken this decision, we do not agree with it." The statement added: "We continue to believe it is inconsistent with Ben & Jerry's values for our ice cream to be sold in the Occupied Palestinian Territory."
Hayden Wood, CEO and co-founder of collapsed energy firm Bulb will leave at the end of July, the company says. He remained in his role when Bulb went bust late last year, and was due to stay on while the firm continued to be run by the government - through regulator Ofgem - until a new buyer was found. However, the firm has not sold, and earlier this week British Gas owner Centrica said it was pulling out of the bidding process. Bulb’s collapse of Bulb is expected to cost the taxpayer £3bn, making it the biggest state bailout since the Royal Bank of Scotland collapsed during the 2008 financial crisis.
Sales, marketing and support services group DCCsaid on Thursday that it has appointed Dr. Fabian Ziegler as CEO of DCC Energy with effect from 1 November.
Retailer Frasers Group has acquired a 28.7% holding in Australia-based fashion marketplace, MySale for an undisclosed sum.

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