• Markit household finance index drops to two-and-a-half-year low
• Hometrack reports widening divide in housing market
A sustained decline in living standards, soaring inflation and worries about job prospects sent the UK's main index of household finances down last month to its lowest level since the depths of the recession, adding to concerns that the chancellor, George Osborne, needs to make greater efforts to boost the economy.
The Markit household finance index dropped to its lowest level for two and a half years, marking eight months of falling consumer confidence.
A survey of the housing market also painted a gloomy picture, with only 8% of postcodes posting a small rise, all of them in London. Hometrack, the property data company, noted a widening north-south and east-west divide, with a 0.3% rise in prices across the south-east and East Anglia, compared with a 0.6% decline in the south-west.
Vince Cable, the business secretary, highlighted the growing alarm in cabinet at the poor state of the economy when he said that growth was so worryingly weak that the Bank of England should undertake another round of monetary expansion through quantitative easing.
Cable believes that without further action Britain could wait many years for a recovery after being locked into a long L-shaped recession.
'There is a genuine problem with demand, especially consumer demand,' he said, speaking ahead of Tuesday's second-quarter UK growth estimates, which are likely to show minimal or no growth, way below what the Treasury needs if it is to meet its three-times downgraded 1.7% growth forecast for this year. A year ago the Office for Budget Responsibility was forecasting 2.3%.
Cable was careful to follow Osborne's argument that looser monetary policy is preferable to a U-turn on tax increases and spending cuts.
Speaking on the BBC, Cable said: 'If there is a sustained period of weakness of demand, the right approach to that is not for the government to relax its fiscal discipline. We have to keep that going.
'It is about the Bank of England pursuing policies of low interest rates, which also help keep our exchange rate down and help exports, but also using expansion, quantitative easing in more imaginative ways, not just in acquiring government securities.'
Osborne appeared to rely on deregulation and promised corporation tax as his chief weapon to combat stagnation. He told the Sunday Telegraph he wanted to do away 'with very high rates of tax that only damage growth and enterprise'. His remarks reflect frustration that public spending has not been cut as planned, leaving the deficit higher than forecast.
In another sign of cabinet nerves, Kenneth Clarke, the justice secretary, spoke of 'icebergs' facing the UK economy, which he said were 'probably the worst in the lifetime of anyone now living'.
Clarke, a past chancellor of the exchequer, said that it might take another two to four years for the economy to recover.
The minutes of the Bank of England's monetary policy committee have shown board members increasingly willing to try more quantitative easing if inflation falls and the economy is not growing.
Ed Balls, the shadow chancellor, warned that unless the UK economy grew by 0.8%, Osborne's borrowing would rise above current forecasts.
'Simply to be on track for his plans, the economy's got to grow by 0.8%,' he said. 'I don't hear many people in the City who think that's going to work. If it doesn't work, it undermines his credibility.'
A study of wages over the past 30 years found that the bottom half of earners have seen their share of GDP fall by a quarter, at the same time as the share going to the top 1% of earners increased by half.
The report, Missing Out, by the thinktank Resolution Foundation said that of each £100 of GDP, only £12 is paid as wages to the bottom half of earners, down from £16 in 1977. In comparison, £3 is paid to the top 1% of earners, up from £2 in 1977.
The report said: 'The largest factor explaining the declining fortunes of the bottom half of earners is the growing gap between the best and worst paid. Inequality has increased in all sectors – from finance to retail – resulting in a wage squeeze for ordinary workers.'
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