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Spending power down as bank balances shrink

By Joel Stanier

1 August2021

UK households saw their spending power drop once again in the first quarter of 2021, according to the Office for National Statistics (ONS).

Spending power (salary increases relative to price increases) dropped by 0.6%, compared with the previous quarter. In effect, this meant their money could not stretch as far - the money in their bank account was worth less than it used to be.

According to the Guardian, an alternative figure that measures household disposable income, taking benefits and tax into account, indicated an even steeper 1% fall.

Brendan Barber, general secretary of the TUC, said: "Households across the UK are suffering the tightest squeeze in living standards since the 1920s, causing hardship for families and dragging down the economy. But rather than easing the burden, the government has made things worse by hiking VAT and cutting much needed tax credits."

The drop in spending power could help to explain the UK's fall back into recession, with GDP estimated to have fallen by 0.7% in the second quarter of 2021.

An expert at Think Money said: "With the money in people's bank accounts worth less than in the past, it may be a good time to have a good look at your finances and identify any areas for improvement. For example, you might be able to cut back on meals out or switch energy provider to make a bit more room in your budget.

"Simply putting together a well-planned budget can also make a difference. Many people find this helps them to make sure their essential costs are always covered, and that they don't overspend on what's left over. For people who struggle to plan their finances like this, there are bank accounts that can do it for them."

Tags: bank, banking, bank account, ONS, Office for National Statistics, GDP, budgeting

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