UK consumer spending power has fallen "dramatically" due to a large rise in the cost of living, research by Ernst & Young suggests.

The average household is 15% worse off than it was five years ago, the Annual Discretionary Income Study says.

After household bills and tax, it found the typical family had less than 20% of its gross income remaining - compared with 28% in 2003.

It added that rate rises and fuel bills meant "the worst could be yet to come".

"Many UK consumer segments are clearly feeling the pinch as big rises in household costs are far outstripping relatively modest wage inflation," said Jason Gordon, director of retail at Ernst & Young.

"The significant decline in discretionary income means consumers are no longer in a position to spend as freely as they have done in the past."

Fuel factor

The report said that monthly discretionary income for a typical household was now £772.79 - compared with £909.84 in 2003/04.

And with higher interest rates and a growth in the amount people are borrowing to buy property - average monthly mortgage payments are just under £735 - 78% higher than in 2003/04.

Other findings included:

Fixed monthly household costs have risen by almost 45% since 2003/04.

Petrol costs for a typical household are £193.61 per month - 29.4% higher than in 2003/04 Average monthly energy bills have risen by 110% since 2003/04 to £95.80.

Council tax is up almost 25% since 2003/04 to £114.50 per month for a band D property.

However the report said that increased competition had brought down the cost of fixed line telephone costs while lower servicing charges and tyre costs had reduced the cost of car upkeep.

"All consumers are painfully aware of the huge hikes in petrol and utility bills but we've also seen some fairly hefty price increases in pension contributions and debt repayments," Mr Gordon said.

"If we go one step further and factor in food price inflation it's clear that household budgets are under enormous strain.

"Add in the impact of falling house prices on the consumer's propensity to spend, and the consumer economy is undoubtedly on a knife-edge.

"Worryingly, though, the worst could be yet to come. If, as predicted, utility prices rise by as much as 40% later this year and interest rates are increased to control rising inflation, consumers and consumer facing businesses will face even bleaker times."