Slowing spending power and rising costs could put pressure on UK household finances

  • UK families had £201 of discretionary income in August – a rise of 5.3% in spending power compared to the same period last year
  • But growth continues to slow as rising transport, fuel and food prices affect family bank balances
  • Weakened pound is not deterring shoppers

UK families had £201 in discretionary income to spend in August according to the latest figures from the Asda Income Tracker, released today.

The figures mark the 22nd consecutive month of double-digit growth in pound terms, with households benefiting from an extra £10 per week compared to the same period last year
But whilst the positive figure suggests good news for spending power year on year, the data also shows that the rate of growth has slowed month on month in 2016, with disposable income staying largely flat for the past five months.


While essential item inflation has remained at near-zero levels and Consumer Price Inflation is holding steady at (0.6%), rising input costs and slowing wage growth mean that monthly spending power is not growing as quickly as seen previously.

Other factors impacting spending power are increased transport costs – up 0.9% over the month of August and an increase of 0.9% in food prices. Families searching for flights to warmer climates were disappointed with airfares rising for European routes. Meanwhile, manufacturer costs climbed at the fastest annual rate in almost five years, suggesting that further inflationary pressure could be around the corner.

The report also suggests that as prices are expected to continue to rise, headline inflation will move towards the Bank of England’s 2% target for 2017.

On the plus side, the report, compiled each month by CEBR, noted that a cut to interest rates helped to offset the rising costs and resulted in a further fall in monthly mortgage payments. And the uncertainty – triggered by the results of the EU referendum – doesn’t appear to have impacted shopper behaviour at the tills.

In the labour market, the picture also remained relatively positive, as the rate of unemployment across the UK held steady at 4.9% and wage growth remained well above the level of inflation. However, records show that regular earnings growth (excluding bonuses) dropped to the lowest level since the start of 2016 (2.1%), despite the introduction of the National Living Wage in April.

An Asda spokesperson said: “This month’s report is a mixed one for families. On the one hand it’s encouraging that we continue to see a rise in spending power, courtesy of low levels of essential item inflation, and cuts to interest rates. However, on the other hand, there are some trends beginning to emerge that consumers should be mindful of.
“With inflation predicted to creep up as we head towards 2017 and the potential for a continuation in the rising costs of some essentials, families will be watching their wallets with interest over the coming months.”

Sam Alderson, Economist, Cebr, said: “UK households have continued to help to drive economic activity in the months following the referendum, clearly supported by further robust increases in household spending power.

“However, whilst the initial turbulence has been navigated, improvements in household finances have slowed, a process that could accelerate if rising production costs begin to feed into prices at the tills.”

ENDS