Household finances are a millstone around the neck of recovery

A new poll from the Resolution Foundation reveals almost half of all people on low-to-middle incomes now say they have no cash left over at the end of each month.

James Plunkett is the secretary to the Resolution Foundation’s Commission on Living Standards

A new poll (pdf) out today from the Resolution Foundation confirms the extent to which poor household finances are now exerting a downward pull on the UK economy. The poll, carried out for the Foundation by Ipsos/MORI, finds that almost half of all people on low-to-middle incomes now say they have no cash left over at the end of each month.

More than one in four say they don’t make any regular savings. The findings reveal in stark terms that millions of ordinary households – not the poorest, and the vast majority in work – are now living on the edge of their means.

In a sense, the poll is no surprise in light of line of recent ONS data. With disposable income falling in real terms, households are finding themselves left with two unpalatable options: either cutting back on their spending or digging into savings.

Both have serious implications for the prospects of a sustainable UK recovery. As I highlighted in a recent blog post, it is now increasingly clear – as many predicted – that a recovery from the recent ‘balance sheet recession’ will be slow and tough.

As Figure 1 below shows, in the past three major recessions to have hit the UK, it was at around this point – 10 quarters on from the onset of the contraction – that household consumption began to pick up again strongly. On each occasion, that helped lift the economy back into sustained growth.

Figure 1:

Household-consumption-following-the-onset-of-recession
This time around, a combination of historically high household debt and falling disposable income means consumption is proving little more than a millstone.

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14 Responses to “Household finances are a millstone around the neck of recovery”

  1. Dr. Ben Wright

    Resolution Foundation Poll confirms extent to which poor household finances now exerting downward pull on UK's economy: http://t.co/Qwy7BRR

  2. Robert

    More than one in four say they don’t make any regular savings. The findings reveal in stark terms that millions of ordinary households – not the poorest, and the vast majority in work – are now living on the edge of their mean.

    Yes well the poorest are use to it, we send sorry use to send our kids down the mine, or flog them off for child prostitution, but Labour stopped that as well.

    Fuck me, does this mean we at the bottom are now Untouchables, we do not matter anymore, seems a bit New Labour if you ask me, if the middle class are struggling on £32,000 then imagine being with the rest of us at the bottom on £14,000. Poor old middle class.

  3. Chris Goulden

    RT @leftfootfwd Household finances are a millstone round the neck of recovery: http://t.co/RwmVBLk writes @JamesTPlunkett

  4. Nathon Raine

    RT @leftfootfwd Household finances are a millstone round the neck of recovery: http://t.co/RwmVBLk writes @JamesTPlunkett

  5. Richard

    But don’t you remember Robert? Tony told us at the bottom we were all middle class now. Which is why we stopped voting for him in our millions.

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