Families to be �910 worse off a year

Douglas McWilliams, one of the report?s authors and chief executive of CEBR, said: "We have been pointing out the pressures on household incomes for over a year, during which the underlying position has deteriorated as average earnings growth has remained very low while commodity price inflation has accelerated."

He said that the public sector spending cuts were only responsible for a small part of the squeeze; most of the trouble will be caused by higher prices.

Petrol has climbed from 122p at the end of last year to 133p for a litre of unleaded this month, with the 1p cut in fuel duty already being wiped out by climbing prices. Higher commodity prices such as sugar, cocoa and wheat have already filtered down to steadily climbing food prices.

He pointed out that many retailers have already felt the effects of the consumer slowdown, with the likes of Next, Asda, Sainsbury's and Primark all highlighting how shoppers have started spending noticeably less in recent weeks.

The calculations from CEBR come just ten days after the Institute for Fiscal Studies (IFS) calculated the average family was �365 a year worse off because of the impact of recession, which had led to record low interest rates ? wiping out any income earned from savings, as well as leading to many people having their wages frozen.

Since the 1960s, in a typical three-year period, households have enjoyed a 5 per cent increase in their income. One of the triumphs of the British economy over the last half century has been consumers being able to increase their earnings faster than any rise in prices, with only temporary dips during recessions.

However, many experts point out that the most notable feature of the current downturn has been the long-running squeeze on living standards, despite unemployment levels being far lower than in the recessions of the 1990s, 1980s or 1970s.

The one time that disposable incomes fell substantially during peacetime -- excluding the year of the General Strike in 1926 -- was during 1921. Though, the recession of 1976 to 1977 did see a sharp fall in household disposable income, which fell 2.8 per cent.

The IFS pointed out that one of the group which had been most squeezed were pensioners, many of whom had relied on savings but had seen their income drop as interest rates fell to a record level.

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