UK Economy - Real Incomes Falling - Recession Risk Grows

Real disposable incomes in the UK have now fallen for four successive quarters and as a result, the risk of a consumer-led recession is rising.

The latest government statistics show that the real disposable incomes of households has fallen in each of the last four quarters. Millions of people are experiencing a fall in their real living standards, and this is likely to increase the risk of a consumer-led recession in 2023.

What is real disposable income?

Income available for a household after direct taxes & welfare payments then adjusted to remove the effects of inflation.

There is clearly a big squeeze on real disposable incomes facing the UK. Cuts in national insurance and income tax will help a little but the freezing of income tax allowances will cause many more people to be dragged into paying direct taxes as their wages rise.

Wages are lagging price inflation and the overall tax burden is at a seventy-year high. When real disposable incomes fall, there is a real risk that consumer spending will decline, and this is the biggest single component of aggregate demand.