UK Households Suffer Longest Squeeze in 40 Years

By Wiktor Szary and Jason Douglas Features Dow Jones Newswires

British households suffered the longest sustained decline in disposable income in over four decades in the nine months through March, data showed Friday, highlighting the scale of the squeeze on living standards following the Brexit vote.

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U.K. households' disposable income fell by 1.4% on the quarter in the first three months of 2017, the fastest pace of decline in four years, the Office for National Statistics said.

This was the third consecutive quarter of falling disposable income, and the longest such period since the late 1970s.

The decline was driven by meager wage growth, rising prices and higher taxes, the ONS said. Taxes climbed at the fastest quarterly pace since 1998, partly due to the timing of tax self-assessments filed by a growing number of self-employed taxpayers.

As squeezed consumers pared back spending, the largely domestic-driven U.K. economy slowed sharply in the first quarter of the year, the ONS confirmed.

The quarterly growth in the first three months of the year stood at 0.2%, the final reading showed, significantly below the 0.7% quarterly rate seen in the last quarter of 2016. On an annualized basis, growth stood at 0.9%.

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Spurred by the pound's steep depreciation after last year's June 23 Brexit referendum, annual inflation in the U.K. accelerated in May to 2.9%, the fastest rate since June 2013, and significantly exceeding the pace of growth in wages.

Shrinking real wages and disposable income mean that British households have resorted to debt to fuel their consumption, with unsecured borrowing growing at an annual rate of over 10% for several months now.

Bank of England Gov. Mark Carney said this week that an interest-rate increase may be necessary in the U.K. if higher business investment and exports begin to offset slowing consumer spending.

Data Friday showed the U.K.'s current-account deficit widened in the first quarter, however, though business investment rose.

Write to Wiktor Szary at Wiktor.Szary@wsj.com and Jason Douglas at jason.douglas@wsj.com

(END) Dow Jones Newswires

June 30, 2017 05:21 ET (09:21 GMT)