Households feel the squeeze

The percentage of household income that is spent on food, bills and other essential items has risen from 25% to 31% over the past six years, according to research conducted by Capital Economics.

Rising interest rates in recent years coupled with high food and energy prices were largely to blame, the consultancy said, although mortgage payments were likely to fall from 10.7% to 10% by 2009 as the credit crunch eased off and interest rates fell.

But the organisation predicted increases in gas and electricity bills of 10% and 8% in the second half of 2008 and added that the cost of food, water rates and council tax was also likely to increase.

Average earnings growth would remain at just under 4%, Capital Economics predicted.