Consumers will be better off at the end of the year after a dramatic slowdown in inflation and rise in the personal tax threshold, according to a report by the Ernst & Young Item Club.
The average consumer will be £482 better off this year and £624 to the good in 2013 compared to 2011, leading to a turnaround in high street spending, said the analysts.
Andrew Goodwin, the club's senior economic adviser, said: "After the tightest squeeze on consumer incomes in a generation, the worst is now behind us and most people should start to feel a bit better off by the end of the year.
"Wage growth will finally begin to outpace inflation and our pay packets will also be boosted by the tax changes announced in the budget. Only the top 10% of the income distribution, earning above £36,000, and the bottom 10%, who aren't liable for income tax, won't benefit from the increase in the personal allowance."
The report is unlikely to cheer those facing cuts in tax credits and housing benefit over the next year that will leave many much worse off and households on lower incomes only marginally better off.
The personal allowance will rise from £8,105 in 2012-13 to £9,205 in 2013-14, taking one million people out of the tax net. But poorer working families who get housing and council tax benefits will be just £33 a year better off from the threshold rise because as their income goes up their benefits fall. Hundreds of thousands of middle income earners are likely to lose their benefits altogether.
Inflation has fallen from above 5% in 2011 to 3% last month and is expected to keep dropping, but has remained well above average wage rises, which are running at 1.8% excluding bonuses.
