Real household disposable income (RHDI) fell by 2% in the first quarter of 2017 compared with the same quarter in 2016, figures released by the Office for National Statistics confirmed this week.
However, those with income from overseas investments may have benefited from the fall in sterling.
Net national disposable income per head increased by 4.3% between the first quarter of 2016 and 2017. The ONS said this was mainly owing to a £6.9bn increase in the income received from the UK’s foreign direct investments from abroad.
The ONS said that between Q4 2016 and Q1 2017, consumers reported an improvement in their perception of their own financial situation and the general economic situation during the past year.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “The pressure is ratcheting up on UK households, but consumers don’t seem to be fully aware of the crunch that is under way. They have clocked rising prices, but don’t see this as having significantly dented their finances. They may well be right, as inflation takes time to bite into household budgets. The risk is that by the time it’s happened, it could be too late to do much about it.
“The main culprit for the consumer squeeze is a falling pound, which has hiked the cost of imported goods. There have been positive effects for anyone who has income from overseas, or indeed an investment in the stock market, which has been given a boost by weaker sterling.
“This may in part be responsible for high levels of consumer confidence, as those with pensions and stocks and shares ISAs will have seen the value of their nest eggs rise considerably over the last year or so.”
