UK consumers were today warned to expect falling real incomes for this year and beyond after inflation was forecast to keep on rising.

The Bank of England today predicted that inflation will rise towards 5% in the coming months.

With pay rises currently running at below 2% that will lead to a significant drop in real incomes.

Bank governor Mervyn King admitted that inflation could stay above target for two to three years, on current projections, after inflation rose to 4% in January from 3.7% in December.

The Office for National Statistics and King himself blamed the rise on the VAT increase and rising heating, petrol and food costs – but that will be of little comfort to the majority of British households, for whom such items comprise major outgoings.

Moreover, the retail prices index, which includes a wider assessment of households’ outgoings, is already running at 5.1%.

Ann Robinson of comparison website uSwitch.com, warned that, ‘Consumers are facing a perfect storm that could see household finances knocked for six this year. Today’s news that the CPI has hit 4% is expected to be followed tomorrow by news that wages have increased by just 2%.

‘When salaries fail to keep up with inflation it spells misery for consumers. These figures could be a cruel and costly combination for households, many of whom are already struggling to stay afloat in these stormy economic times.’

She also warned that many households will see little alternative but to resort to borrowing to bridge the gap between stagnating pay and the soaring cost of living.

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