Disposable income: First rise for two years on horizon

Household disposable incomes are expected to rise next year for the first time since 2010, a report by the Centre for Economics & Business Research (CEBR) has said.

A combination of falling inflation and higher tax free personal allowances set to come into force next year are hoped to alleviate household budgets in 2013.

Forecasts from the CEBR's Quarterly UK Prospects report predict continuing falls in inflation, which will see it undershoot the Bank of England's central 2 per cent target by early next year.

A further fall of 1.6 per cent in the second quarter of the year is likely, it said, averaging 1.8 per cent for 2013.

Inflation in the UK has fallen rapidly from its record peak of 5.2 per cent in September last year, to 2.4 per cent in June, in response to falling fuel prices and early summer clothing sales.

Senior economist for the CEBR Scott Corfe said that the weak global economy had led to 'one benefit' for consumers: 'falling inflation'.

"Slowing price growth will boost household spending power and also give the Bank of England room for manoeuvre in keeping interest rates on hold until 2016," he said.

The tough ongoing economic environment is expected to keep commodity prices low and inflation down across the world over the coming months.

As announced in this year's Budget, the increase in the tax free personal allowance from £8,105 to £9,205 from April next year will also boost spending power.

Corfe continued: "However, consumers have been hit hard by declining living standards in recent years."

"Even with growth from 2013 onwards, real disposable incomes aren't expected to surpass their 2010 peak level until 2015."