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Household income falls at fastest pace for five years

But cash-strapped consumers remained optimistic over their economic well-being.

Household income adjusted for inflation fell at its fastest pace for more than five years at the start of 2017 as soaring prices squeezed budgets.

The latest official figures revealed that real household disposable income per head dropped by 2% year-on-year in the first quarter – the steepest decline since the end of 2011.

The Office for National Statistics (ONS) said the drop was driven by surging inflation as the Brexit-hit pound has sent the cost of imported goods and services soaring. This has put consumer finances under pressure as inflation outstrips weak growth in wages.

Real household disposable income per head has now fallen for three quarters in a row, which marks the first time since the last long run in 2013.

But the ONS said the wider measure of net national income per head rose 4.3% year-on-year as the weak pound boosted earnings on overseas investments by £6.9 billion.

Cash-strapped consumers also appeared optimistic over their economic well-being in spite of the inflation squeeze, reporting an improvement in how they see their own financial situation and the general economic picture over the last year.

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The Bank of England warned Britons will face financial pressures in the months ahead (Victoria Jones/PA)

Dominic Webber, head of economic well-being at the ONS, said: “With prices rising and wage growth still modest, real household disposable income per head has now fallen at its fastest rate in over five years.

“In contrast, however, net national disposable income per head – which better represents all the income in the economy available to spend or save – has increased sharply.

“This is due to a £6.9 billion increase in the UK’s foreign earnings, driven in part at least by the devaluation of sterling.”

The ONS’s well-being data showed that gross domestic product (GDP) per head remained flat quarter-on-quarter and 1.3% higher year-on-year.

The ONS data highlights the woes facing households and comes after the Bank of England has stepped up its warnings of the pressure Britons will face over the months ahead.

Inflation jumped to 2.9% in May – its highest level in nearly four years – and the Bank has warned that it will rise past 3% by the autumn.

But the squeeze is likely to intensify as a raft of Bank policymakers have signalled that interest rates may go up soon from the record low of 0.25% to rein in rising inflation.

Three rate-setters called for a rise to 0.5% in June, marking the biggest dissent for more than six years.

Bank governor Mark Carney said last week that a rate increase may “become necessary” against a picture of rising inflation.

Trade union TUC called on the Government to take action on the plunge in living standards.

Frances O’Grady, TUC general secretary, said: “It’s official. Britons are getting poorer.

“Having just lived through the longest wage squeeze since Victorian times, their living standards are in freefall again.”

She added: “The Government cannot sit on its hands and watch this crisis unfold. It needs to help create better-paid jobs in the parts of Britain that need them most.”

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From Belfast Telegraph