Disposable income plunges as inflation bites

Soaring inflation bit into the nation's nest eggs and hammered disposable incomes in the first three months of this year, official figures revealed today.

The painful squeeze left households' disposable incomes down 0.8% on the quarter and 2.7% below a year earlier. The share of savings put aside by households fell from 5.1% to 4.6% - the lowest for nearly a year according to the Office for National Statistics.

The economy's overall growth was left unchanged at 0.5%, but the figures confirmed a bleak picture for UK consumers as soaring petrol and food prices take their toll.

In terms of pounds spent, household spending was up 1.3% during the period. But stripping out the impact of rising prices, real-terms spending is down 0.6%. The biggest cutbacks were seen across clothing, footwear and homewares.

Vicky Redwood, senior UK economist at Capital Economics, said: "Households had to run down their saving a bit to stop spending falling even further."