Growth in family spending power continues to slow, whilst debt is on the rise

  • Families had £205 of discretionary income in January, £7 more than the same time last year
  • But Asda Income Tracker reveals Household debt has grown by nearly 10% a year over the last 5 years
  • The cost of living increased again in January 17, which contributed to the slowdown in disposable income growth
  • Fuel prices were up nearly 17% year on year, as inflation increased to 1.8%

The latest Asda Income Tracker revealed that in January, families had £205 of disposable income available each week, up 3.5% from the same period last year.

Whilst the data shows that family spending power remained up year on year, growth slowed again in January to £7 per week more than the same period in 2016. This is the slowest rate of growth reported since August 2014.

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Vehicle fuel, one of the key essential items for consumers, increased by 16.8% year on year, caused by a combination of currency movement and an increase in worldwide oil prices, along with the continuous rise in inflation to 1.8%. Petrol prices had the largest impact on the rise of the cost of living for families.

Other essential commodities that have seen a spike in cost are restaurants and hotels, communication and alcohol and tobacco. Mortgage interest rates, gas prices and food and drink still saw deflation compared to January 2016, however there is still an increased pressure as inflation nearly reaches the bank of England’s target rate of 2%.

Wage growth also slowed in the three months to January and was just 2.6% higher on average than it was in the same month in 2016. With wage growth slowing and the cost of essential items increasing, families’ disposable income is becoming increasingly squeezed.

Despite consumers’ disposable income growth slowing, the purse strings are not being tightened just yet. This month’s report found that average unsecured household debt such as credit cards and loads reached £7,000 at the end of 2016. This is £508 higher than it was in the previous year and going into 2017 is rising at a rate of over 10% per year.

The continued strong rise in debt suggests that consumers still make use of low interest rates, despite the gloomy outlook for finances in the coming months. As an overall market, consumer credit was £14bn higher in January than the same time last year and £36bn up from this time three years ago.

Scott Corfe, Economist, Cebr, said: “The party is starting to fizzle out for consumers in 2017, with growth in discretionary spending fading fast. The latest Income Tracker sets the scene for next month's Budget, when the Chancellor will be under pressure to deliver some tax cuts for the 'just about managing' at a time when incomes are under the cosh. He will have a delicate balancing act between providing these tax cuts, and needing to boost spending on the NHS and care."