Income levels to rise next year, says CEBR

Sterling notes and coins As inflation falls further, real incomes will pick up, according to the CEBR

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UK households will see a rise in real income levels next year for the first time since the onset of the financial crisis, a study suggests.

Taking inflation into account, incomes are set to rise by 0.5% in 2013, according to the Centre for Economics and Business Research (CEBR).

But they will drop by 0.2% this year, the group said.

Households have struggled in recent years with low or no wage rises and relatively high inflation.

Falling inflation

Many people have seen wage freezes during the economic downturn, with inflation rising sharply between September 2009 and September 2011 to stand at 5.2%, as measured by the Consumer Prices Index.

It has fallen steadily since then to 2.6%, apart from a small rise in the rate of inflation last month.

Unemployment also rose sharply during the downturn, from 1.61 million in May 2008 to 2.59 million in July 2012.

The CEBR said real levels of income would start to pick up as inflation fell further, with middle and low-income families benefiting the most.

Middle-income households would see incomes rise by 1% next year, with lower-income families seeing a rise of 1.5%.

The richest households would see incomes rise by 0.7%, the research estimated. This is because of a drop in top executives' pay and bonuses and the scaling back of some tax allowances.

Similar increases would be seen across the board in 2014 and 2015, it suggested.

'Retail boost'

The CEBR said improvements in real income levels would have a knock effect for struggling retailers.

Over the next 12 months, it predicted retail sales volumes to rise by 2.5%.

"After four barren years, there is finally a glimmer of light at the end of the tunnel for retailers," said CEBR economist Daniel Solomon.

"Conditions will still be tough, just slightly easier than before."

Many retailers have struggled during the UK economic downturn. The economy is officially back in recession after contracting for the past three quarters.

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