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Is the Squeeze on Living Standards Over? (Spoiler: Yes, but No)

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BRITISH POUNDS
Shutterstock / Adam Gilchrist

There has been much speculation that the squeeze on living standards is over, but digging below the headline figures shows that policy makers still face significant challenges in ensuring that living standards rise in future Parliaments.

Better things to come for consumers

Recent data show wage growth matching inflation for the first time since 2010 and a raft of recent data releases suggest that, in line with official forecasts, this could be the start of a longer-term trend of rising real incomes.

Recent highlights include that: the UK economy grew by a better-than-expected 0.8% in the three months to March (leaving overall GDP just a tad below its pre-recession peak); indicators of activity and business confidence in key sectors like manufacturing and services point to strong figures for future GDP data releases; and unemployment continues to tumble faster than expectations.

The importance of consumers in driving these positive figures is clear, with the last few months seeing a notable increase in consumer spending (both in terms of volume and value).

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Consumers' confidence is also returning. In April, Which?'s consumer insight polling showed that, for the first time since our tracking began, more consumers are positive about prospects for their personal finances than are negative. Consumers are even more positive about the prospects for the UK economy, with the net positive balance having increased for the last nine months. Actual spending is also on the up, and, most notably, the Which? insight tracker shows people are more confident to spend on discretionary items as fewer cut back on non-essentials like entertainment and big ticket items.

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But we're not out of the woods yet

Increased spending, confidence and confidence in the future all bodes well for the future. But let's not get too excited. It is clear that beneath these headlines, many consumers are still struggling. For instance, positivity over prospects for future personal finances varies significantly across the UK. Londoners and people in the West Midlands are much more likely to feel positive about their future finances than those in the North West or in Wales.

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Some groups are also faring better than others. Our data shows men are more likely than women to be feeling positive about their financial situation and higher income households are also much more optimistic than those on lower incomes.

As well as these divergent experiences of the improved economy, it is also clear that in practice, the living standards challenge was always about more than just recessionary pressure on prices and incomes. Which? research using the ONS' Living Costs and Food survey also shows that consumers are facing pressures that are much longer-term than the financial crisis, with essential spending taking up more and more of consumer budgets over the last ten years. There are also more pressures to come, with hundreds of billions of pounds of infrastructure investment and policy decisions (for instance over energy efficiency) being pushed through onto consumer bills.

With this context it is unsurprising that three in 10 consumers still tell us that they are finding it difficult to live on their incomes and over 70% of consumers say that they are worried about energy and fuel prices.

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Overall, there is no doubt that recent good news on growth, earnings and inflation should be warmly welcomed. But looking at the longer-term trends and how consumers are feeling shows that the squeeze on households' finances is very much still alive. It's just not the same squeeze that has been talked about in public debate. Going forward, future governments will continue to be judged on whether they preside over a rise in living standards during their time in power. To do this, ambitious policy responses will be needed to help consumers tackle the challenges that lie ahead.

The living standards squeeze is over. Well, sort of, but not really.

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