Real household disposable income in the UK - Data and Analysis (2001-2032)

In the first annual decline since 2011-12 (-0.5%), RHDI was pressured in 2016-17 (-0.8%), and subsequent growth in 2017-18 (+2.2%) and 2018-19 (+2.2%) proved somewhat lacklustre against the pre-referendum growth rate – RHDI grew by more than 5% in 2015-16 (+6.4%) for the first time on an annual basis since 2000-01 (+5.5%). In June 2016, the UK electorate voted to withdrawal from the EU bloc, whereby prevalent political and economic uncertainty which followed shook up currency and investment markets. Despite the BoE MPC dropping the base interest rate to 0.25% in August 2016 in an effort to stimulate both business investment and consumer spend, and stem a presumed economic downturn, a depleted pound sterling exchange rate, wage pressure and higher inflation all contributed to somewhat tentative growth in RHDI.In 2019-20, RDHI increased by 1% year-on-year. Despite referendum-related market ambiguities, business uncertainty and depleted confidence, the UK labour market was seemingly resilient for the majority of the year, supporting overall earnings. While the BoE MPC opted to hike base interest rate in November 2017 (0.5%) and again in August 2018 (0.75%), thereby increasing the cost of certain repayments and eating into discretionary income, this shift in monetary policy was implemented to nip inflationary pressures in the bud. While the inflation rate had remained above the BoE's 2% target, the consumer price index (CPI) measure of inflation, subsequent to the rate hike, trended downwards and ended 2019 at 1.3% in December 2019. Lower inflation, to a certain extent, buoyed RHDI for the most of 2019-20; regardless, however, during the final quarter of the 2019-20 financial year, the COVID-19 (coronavirus) pandemic and resultant economic shock effectively stunted recent gains in RHDI.The pandemic sent ripples through the global economy, with severe supply chain disturbance, stock market downturn, current market sell-offs, and social disruption (e.g., weak consumer demand, depleted business activity) collectively resulting in an economic shock and lacklustre short-term growth prospects in most sectors of the UK economy. Stimulatory policies and support packages were implemented with the intention of spurring economic activity - the BoE MPC imposed emergency cuts to the base interest rate, to 0.25% and a record low 0.1% on 11 March 2020 and 19 March 2020 respectively, while the Chancellor of the Exchequer set out a package of temporary measures to support public services, society and businesses through disruption caused by the pandemic (e.g., the Coronavirus Job Retention Scheme (CJRS), a Self-Employment Income Support Scheme, the Coronavirus Business Interruption Loan Scheme).Policy intervention and public support failed to completely mitigate what was a marked impact on the UK economy, with individuals across all sectors of the UK economy subject to furlough (i.e., an agreement between employer and employee to remain on payroll if unable to operate in a certain role due to the coronavirus outbreak) or otherwise subject to redundancy. The CJRS, which was subject to revision and subsequently phased out through September 2021, paid employees a proportion of their regular wages - according to Majesty's Revenue and Customs (HMRC), furloughing peaked on 8 May 2020, with some 8.9 million employments furloughed. Considering the prevalence of furloughed workers, and the inevitable increase in unemployment relative to pre-pandemic levels and as the CJRS was phased out, discretionary earning was prevented from increasing to any significant extent; however, the CPI did fall below 1% in April 2020 and remained so month-on-month – bar July 2020 (1%) – until April 2021 (1.5%), with policy intervention in the form of an interest rate cut and a reduction in discretionary spending, as market activity remained restricted, limiting inflationary pressures for the time being. In 2020-21, RHDI remained relatively stagnant, but did grow by 0.4% year-on-year.In 2021-22, RHDI increased, albeit by a modest 0.7% on an annual basis. Despite the CJRS being phased out, redundancy levels remained relatively low against historical standards, with the reopening of the economy spurring an uptick in recruitment activity. With businesses willing to take on more staff in response to the relaxation of COVID-19 restrictions, particularly in the non-essential retail and hospitality sectors, the unemployment rate recorded in the period September-November 2021 (4.1%), was down from the October-December 2020 (5.2%) peak and only 0.1 percentage points up compared to the pre-pandemic level in January-March 2020 (4%). Meanwhile, the ONS proposed that 'with the relaxation of many coronavirus restrictions, total hours worked increased on the quarter' and stated job vacancies had almost recovered to pre-pandemic levels by the turn of the 2021-22 fiscal year. Indicative recovery in the labour market presumably drove a full financial year increase in RHDI; however, inflationary pressures started to mount towards the tail-end of the year, with pressure on RDHI growing.In 2022-23, RHDI is forecast to decline by 3% on an annual basis. The UK 12-month CPI inflation rate rose to 9.6% in October 2022 and the BoE has suggested it could rise above the 10% mark during the calendar year, driven in large part by supply-side factors; specifically, these supply-side factors relate to supply chain disruption, caused by both the Russia-Ukraine conflict and ensuing pandemic-induced market difficulties, and resultant energy commodity price volatility and issues in goods trade. To combat rising inflation, the BoE has leveraged monetary policy, opting to hike the base interest rate on 16 December 2021 (0.25%), 3 February 2022 (0.5%), 17 March 2022 (0.75%), 5 May 2022 (1%), 16 June 2022 (1.25%), 4 August 2022 (1.75%) 22 September (2.25%) and 3 November (3%) and is being pressured to tighten their stance further as inflation remains more than 7 percentage points above the 2% remit. RDHI has been squeezed and may do so for an extended period should a "perfect storm" of the economy having reopened – domestic demand accelerated – and supply-side constraints continue to inflate consumer prices.