Households are being forced to spend more of their income on essential expenses than at any time since 1991 as the cost of living spirals, a leading economic consultancy said yesterday.

The average household spends 31 per cent of its income on mortgage or rental costs, utility bills, food shopping and council tax, new research from Capital Economics shows.

Six years ago, these expenses accounted for just a quarter of a houshold’s disposable income. This pressure on households is unlikely to ease in the coming years. Capital Economics predicts that essential spending will continue to eat up 31 per cent of income until 2010, despite rising salaries.

Vicky Redwood, UK economist at Capital Economics, said: “Even though households' incomes will be rising by around 4 per cent a year, this will do no more than offset the rising cost of unavoidable outgoings — resulting in little money left over to spend on more fun things.”

Mortgage costs have soared for new borrowers this year as lenders increase their rates in the wake of the credit crunch. But Capital Economics says that millions of borrowers already locked into tracker mortgages, which move in line with the Bank of England’s base rate, could benefit from lower mortgage payments later in the year if, as widely expected, the Bank cuts the base rate from 5 per cent. “We think official interest rates will fall to around 3.5 per cent by the middle of next year,” Ms Redwood said.

But further increases in energy and food bills are likely to wipe out any mortgage savings for most families.

Utility bills have already spiralled this year, with the big six energy companies introducing double-digit price increases. Scottish & Southern Energy (SSE), Britain's second-biggest energy supplier, increased its gas bills by 15.8 per cent two months ago.

However Ms Redwood said that more price increases are in the pipeline. She forecasts that the price of gas will rise by a further 10 per cent this year, while electricity customers will have to pay about 8 per cent more.

Recent increases in the price of food have pushed the average food bill to £2,940, nearly 10 per cent of the average household's income of £33,300. The cost of food is rising at above the rate of inflation at 6 per cent year.

The average Council tax bill is now £3 cheaper than the average energy bill at £1,213.

Philip Hammond, the Shadow Chief Secretary to the Treasury, said: "Soaring prices, stagnant earnings and Gordon Brown's stealth taxes are combining to squeeze our standard of living — and the electorate sent Gordon Brown a signal last Thursday that it has had enough."