UK families’ spending power falls back as inflation rises

  • Families across the UK had £198 of discretionary income in August, £1.15 per week less than the same month last year
  • Poorest families see the biggest reduction in disposable income as the cost of essential spending exceeds their incomes
  • Household bills show the greatest price increase year on year, with electricity inflating by more than 9% compared to the same period last year

Asda’s latest Income Tracker today revealed that in August, UK households had £198 of discretionary income available per week, which is down 0.6% compared to the same month last year.

The August data sees consumer spending power back in decline, only a month after returning to growth as seen in the July Income Tracker.

This month’s tracker looks at the differences in disposable income depending on household earnings and shows that families with the lowest income have seen the biggest reduction in disposable cash, whilst those in the top bracket have seen spending power increase year on year.

Download the latest report here:

The below chart shows the average weekly income along with spending power (i.e. disposable income) and growth in spending power year on year of each income group:

Income Bracket

Weekly income

Weekly income growth

Weekly disposable income

Weekly disposable income growth

Highest income

£1928

2.3%

£699

1.5%

2nd highest

£935

2.0%

£259

0.2%

Middle

£606

1.6%

£110

-3.5%

2nd lowest

£379

1.0%

£48

-10.0%

Lowest Income

£180

0.5%

£-26

-25.9%


Gross income growth (including wages, benefits and income from investments) was positive for all five income groups in August, however the increased cost of living meant that only 2 out of the 5 groups saw growth in their disposable income.

The highest earning households saw the largest year on year income increase of 2.3%, meaning their pre-tax income was just short of £2000 per week on average. The lowest quintile saw a much smaller growth of just 0.5% year on year, leaving them with an average gross income of £180 per week.

Once essential costs were subtracted from consumers’ average gross income, the lowest income quintile was left with a negative amount. For this quintile, the cost of living was greater than their income, leaving them £26 out of pocket each week.

On the flip side, those in the highest income bracket had £699 of disposable income per week once essential spending was deducted, which is up 1.5% year on year - compared to a negative 26% growth for the lower bracket.

This month, the cost of essential items for families across the UK increased by 2.6%. One of the main contributors once again was an increase in electricity prices for households. While headline CPI inflation rose to 2.9% in August– electricity was whopping 9% more expensive than in the same month a year earlier.

Clothing and footwear was another category to see an increase in cost for consumers. Year on year, inflation in this category was up 4.6% in August, the highest level since 1989. All in all, the increase in the cost of living is the driving force behind the declines in discretionary incomes for 60% of UK households.

Kay Neufeld, Senior Economist, Cebr, said:
“After a positive reading in July, the latest data for the ASDA Income Tracker show that households’ discretionary income declined again year on year in August. The fall in the tracker was mainly driven by a spike in inflation, especially in the goods of everyday use. Prices for clothing are rising at their fastest pace in almost thirty years, electricity price increases are nearing double-digit rates and food price inflation remains elevated.

However, the worst of the squeeze for consumers might soon be over as inflation is expected to soften towards the end of the year. If the labour market remains firm, households can expect to see better times in the not too distant future.”

ENDS