Spending power low despite pay rise

Household spending power will weaken due to the rising inflation, despite an increase in take-home pay, a new study has shown.

Research by payments services firm VocaLink found that although wages grew year-on-year by 0.8% in July - an upward trend compared with June's growth of 0.6% - they have not caught up with the rising prices of essential goods and services.

Marion King, chief executive officer at VocaLink, said: "Since October 2009, prices have been going up faster than people's take home pay, which is worrying for the average family on a tight budget.

"The gap has narrowed a little this month, but the difference between annual growth in inflation and the VocaLink Take Home Pay Index is 2.4%."

The VocaLink take home pay index continued the recovery that began in June 2010 after the record lows seen in May, but it has not been able to compete with the increasing Consumer Price Inflation (CPI) rate.

Douglas McWilliams, chief executive of consultancy firm Centre for Economics and Business Research, said: "Inflation is likely to remain elevated over the coming months due to the impact of increases in indirect taxes, oil prices and the depreciation of sterling. While these factors, if persistent, would be likely to be associated with an increase in wage growth, the level of spare capacity in the system and the temporary nature of these factors are expected to cause inflation to gradually fall back through 2010 and 2011."

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