Nearly one in three Brits expect income cut

Almost one in three people in Great Britain expects a drop in disposable income this year either through salary cuts or increased costs as the effects of the recession take hold, according to research from Virgin Money.

Virgin Money's Financial Outlook Index shows 29 per cent of adults expect their income to fall over the next three months and the next 12 months.

And it revealed an alarming lack of confidence in consumers' ability to pay household bills and fund spending across a range of 16 key measures of financial health.

Up to 34 per cent are not confident they will be able to maintain or start paying into a savings account and the same percentage are not confident they will be able to book a holiday. Around 42 per cent are pessimistic about their ability to pay for luxuries such as designer clothes or new hi-tech goods.

But while spending is taking a hammering so is confidence in maintaining essentials - one in 10 are not confident they can keep up mortgage and insurance payments and one in five are pessimistic about being able to afford new clothes.

Virgin Money asked over 1,000 consumers to rate their confidence in their ability to pay for 16 different categories of goods and services including essentials such as clothing, groceries, mortgage bills, insurance payments and pension contributions but also non-essentials such as holidays, school fees and gym membership.

Other areas likely to suffer falls in spending in the coming months include eating out regularly and pension contributions, as consumers seek to further limit their expenditure. Around one in five people said they were very unconfident of being able to afford to eat out regularly in the next few months.

Rob Clifford, UK Managing Director of Virgin Money said: "The economic outlook may look bleak and consumers are now familiar with harbingers of doom on a daily basis. But there is hope - for every person worrying about paying essential bills, there are nine others confident of doing just that in this country.

"But we cannot trivialise the effects of the economic downturn. With 29 per cent of workers expecting a drop in disposable income over the next three months and next year, it is clear there is a mood of caution throughout the country.

"There is light at the end of the tunnel, however. Not everyone is suffering the same and not all businesses are equal in the recession. Some still have money to spend but they are increasingly careful how they spend it.

"The biggest losers in the next three months are likely to be any company operating in luxury goods such as consumer technology manufacturers and retailers, jewellers and designer clothing brands. However supermarkets have less to worry about and car and home insurers are less likely to feel the pressure."

"There are signs of recession everywhere but there are also signs for optimism."