Disposable income per household is at its lowest level for more than a quarter of a century and will continue to fall in 2011, the Deloitte Economic Review has revealed.

Economic Adviser for Deloitte, Roger Bootle  warned that UK household finances are set to drop by as much as two percent this year, taking them on par with the lowest level since 1977, not including the depths of the recent recession.

With inflation continuing to rise, overall consumer spending across the UK is expected to drop by at least one percent over the year and if interest rates also rise over this period, Bootle believes the circumstances for families could be at their worst since 1952.

Bootle said : “I think this year will see falling real earnings, falling real house prices and rising unemployment.

“Of course, not all households will be affected equally. Attention has focused on the ‘squeezed middle’, but pretty much all households face a further squeeze over the next year or so.”

The majority of the UK retail sector has been feeling the effects of declining sales and reduced footfall since the beginning of 2011, despite the recent boost as a result of the royal wedding, this looks set to continue for the foreseeable future.

It looks like retailers will have to deal with cautious consumer spending in the short term, but Bootle is confident that things will start to improve in 2012.

He predicts that inflation will fall sharply in 2012 and be below its target by the end of the year, this will mean real incomes will start rising and taxes could start to fall rather than rise by 2015.

Bootle continued: “We need to remember that the big picture is that the recent and looming falls in real incomes will reverse only a small part of the gains in both real incomes and living standards achieved over the past few decades. And more favourable conditions lie further ahead.

“But for those households struggling to make ends meet, that may still seem an age away.”

Please note the views expressed in this blog are the views of the author, Andre Brown and do not represent the view of Locayta, its employees or its shareholders. For more information about Locayta, visit www.locayta.com