The rise in the basic cost of living has come despite a sharp fall in mortgage rates to their lowest level on record. Mortgages are households' second-highest monthly expenditure after food,
The average mortgage rate is 3.43 per cent, but the size of households' debt burden means that this accounts for 17.7 per cent of disposable income.
Darren Winder, Oriel's UK economist, said that interest rates will have to remain low for the forseeable future if households are to deal with their debt. "Debt is crowding out growth in the economy," he said. "Households need more cash."
The analysis come as householders surveyed reveal that over half of them are considering eating into their savings to meet mortgage payments or just to pay for other essentials such as food and heating.
Oriel's analysis estimates that the average household spends £2,091 a month on essentials, puts £162 into savings, and has just £854 left for "discretionary", that is non-essential items, which could be anything from holidays, to books, to clothes. Adjusting for inflation, the last time discretionary spending was so low was in 2000.
Household spending accounts for 60 per cent of GDP and this has contracted by 1.7 per cent in the last year as householders feel the economic squeeze. According to Mr Winder, the biggest impediment to an improvement in cash flow would be a rise in interest rates.
However, the Bank of England’s Monetary Policy Committee (MPC) has indicated that interest rates are likely to remain at the historic low of 0.5 per cent until 2014.
For more information, please visit www.milsted-langdon.co.uk
[ add comment ] ( 46 views ) | permalink