Families see spending power fall across 10 out of 12 UK regions

With just three more paydays until Christmas, the latest figures from Asda’s Income Trackerreveals that:

  • While income growth recovered slightly from a weak second quarrter, any gains in UK household income have been cancelled out by an increased cost of living
  • The average UK household had £197 per week of discretionary income in September 2017, down by £0.94 a week on the same month last year
  • Only households in London and Yorkshire had more discretionary income in the third quarter compared to the same period last year
  • Prices for essential items and services such as fuel and household bills rose sharply in September

The Asda income tracker is a measure of ‘discretionary income’, reflecting the amount remaining after the average UK household has had taxes subtracted from their income and bought essential items such as: groceries, electricity, gas, transport costs and mortgage interest payments or rent.

It measures the amount that households have left over to spend on discretionary purchases such as leisure and recreational goods and services.

See the report in full here:

Year-on-year change in Asda income tracker

Last month saw yet another decrease for the Asda Income Tracker, the fifth out of the last six months, as the squeeze on households’ budgets in the UK continues.

This meant that the average UK family’s spending power in September was £0.94 a week lower than during the same month a year ago. This is equivalent to a 0.5% decrease on the year.

This is driven by the fact that inflation rose once again last month now the highest it has been for five and a half years. This has contributed to a higher cost of living for families, with higher prices for recreational goods and services as well as higher transport costs rising the quickest.

Inflation as measured by the Consumer Price Index rose to 3.0% in the year to September, up from the 2.9% recorded in August. This is the first time inflation has reached 3.0% since April 2012.

At the same time, data on wage growth across the UK still shows hardly any upwards momentum, despite a record-low unemployment rate and a high number of job vacancies.

Small pay increases and reductions in benefit payments mean that households across the UK have to endure further reductions in inflation-adjusted incomes.

Drivers of inflation

The largest contributors to headline inflation are rising prices for transport, restaurants & hotels and recreational goods and services, such as computer games for example.

Having eased somewhat over the previous three months, transport inflation ticked up again in September – rising to 4.2% year-on-year, up from 3.2% in August. This rise was once more driven by more expensive fuel prices.

Electricity inflation continues to stand at 9% for a third consecutive month, after major suppliers increased their prices earlier this year.

Categories such as household bills and transport are showing a heavier impact on families spending power, narrowing the gap between income and the cost of living for consumers.

Regional overview

In positive news for households, gross income growth has accelerated in the third quarter across most regions.

The biggest jump has been recorded in the East of England where incomes before taxes rose by 1.9% YoY in the third quarter, up from just 1.1% in the previous quarter.

Overall, Northern Ireland and London have seen the strongest income growth in the third quarter at 2.2% and 2.3%, respectively.

Scotland and the North East are the only two regions to have seen gross income growth slow between the second and third quarter due to higher unemployment rates.

However, whilst any improvement is welcome, income growth still remains at low levels by historic standards and – most importantly – behind the rate of inflation.

The result is that despite income growth, for various regions inflation means family spending power in the third quarter has fallen more severely than in the second quarter – with the most prounounced fall for families in the North East region having £2.80 per week less in disposable income compared to Q3 last year.

However, some regions also saw spending power growth recover. The East of England saw discretionary income growth recover on the back of higher gross income growth. This was mainly due to job growth in the area, which recovered from a weaker second quarter.

Only London and Yorkshire and the Humber saw positive growth in family spending power in Q3 2017 all other regions, including Scotland, Wales and Northern Ireland, saw a decrease in the amount of money families had to spend after essential bills and taxes.

Households in London top the list and continue to enjoy the highest average family spending power at £271 per week.

The income trackers for the South East and the East of England also stand above the national average at £207 and £220, respectively.

Northern Ireland and the North East continue to have the lowest discretionary incomes with £100 and £135 per week respectively.

Across the country, wages have increased slightly compared to Q2 while unemployment has decreased in most of the regions. The West Midlands (5.2%) and the North East (5.8%) are currently the only regions with unemployment above 5.0%.

However, the rise in the cost of essential spending has eaten up most of these gains leading to a near standstill in income tracker growth between the two quarters.

Kay Neufeld, Economist, Cebr, said: “The outlook for UK households remains challenging as proven by the latest Income Tracker figures. We have seen family spending power decline in five out of the last six month, underlining the mounting pressures on households’ budgets.

“The cost of essential spending has risen considerably since the beginning of the year and we expect that it will take a few more months until inflation slows down. Until then, households in regions with stronger labour markets and lower unemployment have the best chances to keep losses in discretionary income small.”

ENDS