UK households saw a boost to their living standards at the end of 2024, according to official figures which follow upgrades this week to expectations for the years ahead.
The Office for National Statistics (ONS) reported, alongside unrevised data showing 0.1% growth in the economy during the fourth quarter, that real households disposable income (RHDI) per person increased by 1.7% over the period.
The measure of spending power, when the effects of inflation are included, was up from the 0.6% over the previous three months.
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The ONS said the bulk of the increase went to savings rather than being spent, explaining that consumer confidence had darkened at that time and unemployment was rising.
The disposable income figure was bolstered by public sector pay deals struck after Labour’s election victory and private sector pay awards remaining above the pace of price growth in the economy.
The Office for Budget Responsibility (OBR) predicted in its updated forecasts for the spring statement this week that disposable incomes would grow at about 0.5% on average each year between 2025 and 2030.
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The chancellor said that equated to an annual boost of £500.
The ONS figures may help partly explain an unexpected 1% rise in retail sales volumes in February – a month when economists had widely expected a decline of 0.5%.
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There is widespread evidence that economic growth has picked up over the past two months, since a surprise contraction of 0.1% was declared for January though much of that was accounted for in manufacturing and construction.
Private sector activity data, however, continues to point to a meagre performance at a time when consumer and business confidence remains in the doldrums.
The OBR’s report also included a brutal downgrade to the UK’s growth projections this year, falling from a forecast of 2% at the time of October’s budget, to just 1%.
Chancellor Rachel Reeves has blamed events outside her control, mostly Trump trade war-linked market moves, for having to announce spending cuts this week to restore her buffer of almost £10bn to meet her fiscal rules.
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That so-called headroom was completely eroded by weaker than expected tax receipts and a leap in government borrowing costs since the budget.
All this has happened before the main measures from that fiscal event come into force, with businesses warning that a leap in costs from higher tax and minimum pay demands, from April, will erode investment, pay awards and lead to rising prices.
Household spending power will also come under further pressure from then, as many essential bills are set to rise by above the rate of inflation including water, council tax and energy – for those on the energy price cap, at least.
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On top of that, the prospects for Bank of England rate cuts – bringing down borrowing costs for businesses and families alike – are under threat mainly as a result of the effects of the Trump trade war but also those of high wage growth.
Liberal Democrat Treasury spokesperson Daisy Cooper said of the ONS growth data: “These minor revisions will be cold comfort to the families, pensioners and small business owners who have to live with the consequences of anaemic growth, higher taxes and shrinking support.
“The chancellor’s spring statement was a huge missed opportunity to deliver the change people were crying out for after years of Conservative chaos and mismanagement.”
