Asda's Income Tracker reveals spending power continues to grow in spike of rise in essential item inflation
- The average UK household had a weekly disposable income of £197 in February, £12 more than in February 2015
- Annual growth in spending power remained in the double digits in pound terms for the sixteenth consecutive month due to high wage growth
- Wage growth remained the biggest contributor to increased household discretionary income, an increase of 2.2%
- Essential item inflation reached 0% last month, the first non-negative reading since January 2015
Asda’s latest Income Tracker has revealed that families across the UK enjoyed another double-digit increase in spending power last month, with disposable income for UK households reaching £197 aweek.
February’s figure is an increase of £12 (6.7% annual increase) compared to the same month last year, as the added boost in discretionary income grew for the first time month-to-month since September2015.
The latest figures mean this is the sixteenth consecutive month of double-digit increases to family bank balances, with wage growth being the main contributor to the impact on British purse strings, rising over 2% compared to the same time last year and standing well above inflation.
Meanwhile, the outlook remains positive as interest rates are predicted to stay low for a while longer, and low mortgage rates are also likely to provide more welcome warmth to wallets across the UK.
Employment rates also continue to look encouraging. The unemployment rate in February was low at5.1%, and the number of people out of work, receiving the Jobseeker’s Allowance or Universal Credit, has fallen to its lowest number since 1975, dropping 2.5% on January and 12.5% on the same period last year, as more and more Britons entered the labour market.
Andy Clarke, Asda President and CEO said: “Households across the UK continue to see a rise in their discretionary income with the falling cost of essentials including food and fuel providing consumerswith more good news for February.
“We’ve also passed a milestone in the economy, with spending power growth remaining in thedouble digits for sixteen consecutive months, positive trends in employment growth and wageincreases all likely to continue to help the nation’s pockets - it also sets a positive picture for the months ahead which is encouraging for the macro economy.”
Other statistics from Asda’s Income Tracker include inflation on essential items, which reached 0% in February - marking the first month in over a year where there hasn’t been deflation on basic goods. However, while prices increased across health (2.0%) and education services (4.8%), a drop in the cost of food (-2.3%) provided welcome relief for British households when it came to spending on basics such as bread, meat, fish and dairy products.
Adding to the downward pressure on essential item inflation were falling transport costs (-0.7%). Low fuel prices had the single biggest effect on low inflation rates and continued to provide commuters and travellers with more spending money at the pumps when filling up their tanks, with fuel dropping 7.3% on the same time last year. A decline in the cost of second hand cars also added to the reduction on overall inflation levels.
As consumers made the most of low prices, Asda’s Income Tracker shows that consumer spending was probably influenced by special Valentine’s celebrations. Those splashing out on a cozy restaurant dinner or spontaneous weekend away played a big role in contributing to the positive rate of headline inflation, with the cost of dining out and hotels rising by almost 2% in February – the highest rate since early 2015.
Looking to the months ahead, the trend of low interest rates is set to continue following the recent announcement by the Bank of England that a return to the 2% rate of central inflation remains unlikely, due to weak inflation, slow wage growth, and the impact of global events such as the EU referendum in the summer.
Kay Neufeld, Economist, Cebr, said: “In February, the growth rate of family spending power picked up again after decreasing for four months due to an increase in earnings growth, rather than because of decreasing costs of essential items. With the unemployment rate as low as 5.1% and the National Living Wage around the corner, we can expect to see further increases in average earnings in the next months.
“However, in the 2016 Budget Chancellor George Osborne was recently forced to acknowledge the numerous threats to economic growth which are looming on the horizon. From weak demand abroad,to low productivity growth at home and the uncertainties surrounding the EU referendum in June, families will still be concerned about the economy and what that means for the money in their pocket. But the good news is that we still foresee increased spending power in the coming months.”