UK consumers could be sleepwalking into financial difficulties as disposable income falls at the fastest rate since 2011.
Office for National Statistics data revealed that UK households’ disposable income fell by two per cent in the first quarter of this year.
This was largely due to rising prices, however for the moment households seem unconcerned with the inflationary squeeze that is going on - the ONS reports that consumers’ perception of their own financial situation and of the economy at large improved in the first quarter of this year.
The data suggests consumers have noticed rising prices, but are still in positive mood about their financial situation.
A weak pound has also helped to boost UK income from overseas investments, to the tune of £6.9bn over the last year.
However only some of this gain is attributable to UK households, some is attributable to business and governments.
A fall in disposable income from rising prices suggests that overall a weaker pound has so far proved detrimental for household budgets by increasing expenditure to a greater extent than income.
Laith Khalaf, 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 underway.
"They have clocked rising prices, but as yet don’t see this has significantly dented their finances. They may well be right, inflation takes time to really bite into household budgets, but the risk is by the time it’s happened, it could be too late to do much about it. “
He added the data will concern the Bank of England.
"Despite weak wage growth and rising prices, consumers are continuing to spend by racking up more debt.
"That of course helps keep the wheels of the economy turning, but stores up problems for the future. Indeed the household savings ratio recently fell to a record low of 1.7 per cent, which means that as a nation we aren’t putting much aside for a rainy day."
Jason Hollands, managing director at Tilney Investment Management Services, said the figures suggest the move to slash rates and launch more quantitative easing last August after the UK voted to leave the EU was "overly hasty".
"While the Brexit vote is being entirely blamed for the subsequent slide in the pound which has helped fuel inflation because of rising import costs, the Bank's own actions of further loosening have also been a contributing factor in weakening sterling, encouraging indebtedness and hammering the household savings ratio.
"I therefore think it is important that a process of gradual policy normalisation gets under way, a first step being to move rates back up a notch. The economy has the capacity to cope with this."
David Finan, managing director and chartered financial planner of Carlisle based IFA, Jardine Finan, added: "Assets are rising in value but wages not rising at the same rate and people without substantial capital are feeling the pinch."