Page last updated at 19:24 GMT, Tuesday, 6 May 2008 20:24 UK

'Squeeze' on household spending

Average wages are expanding by just under 4% a year

The share of household income spent on food, bills and other unavoidable costs has risen to 31% from 25% over the past six years, research shows.

Consultancy Capital Economics said the squeeze on discretionary spending is unlikely to ease in the near future.

Mortgage payments, the single biggest outgoing for many households, are likely to dip from 10.7% of income to 10% by 2009 as interest rates fall.

But this will be offset by rises in the cost of energy and food, it said.

Moreover, the increased spending is not likely to be matched by pay rises.

Average earnings growth is set to remain at just under 4% a year, Capital Economics said.

Bills to rise

In response to the figures, Conservative Treasury spokesman Philip Hammond said that rising prices were lowering people's standard of living.

"These figures help to explain why hard-working families across Britain are feeling worse off under Labour," Mr Hammond said.

Capital Economics analyst Vicky Redwood said that gas and electricity bills will rise by around 10% and 8% in the second half of the year.

Water and council tax bills are expected to increase and food inflation is set to remain at its current rate of 6% for the next few months.

Capital Economics also forecast that rents will rise because of increased demand for rental property from prospective first-time buyers finding it difficult to get a mortgage.

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