Fifth of UK households 'see drop in income' says Deloitte

Deloitte said a rise in unemployment was contributing to lower household incomes

One in five UK households saw a drop in income in the last quarter, a survey by financial services group Deloitte suggests.

This was due to a unemployment, loss of bonuses, a reduction in overtime or more part-time working, Deloitte said.

As a result, consumers cut back on their discretionary spending on things like entertainment and holidays.

At the same time, inflation is driving up the cost of essentials, with 44% of respondents spending more on food.

Half said they were spending more on utility bills and 37% were spending more on transport costs.

"A fierce squeeze on disposable income and high levels of macroeconomic volatility pushed the consumer sector back into recession in 2011," said Ian Stewart, chief economist at Deloitte.

"The UK has generated far higher levels of inflation over the last year than any other industrialised nation, and this has hit consumer spending power."

Inflation on the Consumer Prices Index (CPI) measure fell slightly to 4.8% in November from 5% the previous month, but is still well above the Bank of England's target of 2%.

'Prioritising spending'

Deloitte's new Consumer Tracker, which monitors consumer confidence and spending habits, found that 41% of consumers were spending less on entertainment.

It also found that 28% were cutting back on holidays, while 36% were spending less on clothing and footwear.

However, Deloitte said that in the clothing category, consumers appeared to be buying cheaper items rather than fewer items, with figures indicating that sales volumes were flat rather than falling.

"Consumers are telling us they are deliberately making fewer impulse or spontaneous purchases. People are being forced to prioritise their spending habits," said Nigel Wixcey, UK head of consumer business at Deloitte.