Family spending power begins the year in the red as inflation pressures continue to bite

  • Average spending power fell again in January, extending the squeeze on household incomes
  • The UK’s highest earners were the only ones to see discretionary incomes grow in the first month of 2018
  • 80% of the UK saw a further hit to family spending power
  • Household spending power, a key determinant of economic growth, is expected to improve towards the end of the year

The latest figures from Asda’s monthly Income Tracker have shown there was a further reduction in disposable income in January. Family spending power fell by £1.13 (0.6%) per week compared with the same month last year,

The drop, which is the ninth reduction in the last 12 months, means families now have £200 per week disposable income available to them after paying for household essentials, extending the squeeze in household incomes into the new year.

See the full report here:

Year-on-year change in Asda Income Tracker

The reduction in the Income Tracker was driven by high inflation – which stood still at 3.0% (as measured by the Consumer Price Index) – and prices for essential goods and services continuing to rise.

January saw double-digit inflation in electricity rates and gas up 0.6% - its highest rate of inflation since November 2014.

The cost of recreational and cultural goods and services also increased in the month, whilst inflation for clothes and footwear accelerated to its highest level since August 2017.

However, transport inflation did slow again in January, reducing the overall headline inflation rate. Fuel inflation fell from 4.7% in December to 2.1% in January. Asda cut the price of fuel for its customers again in February, to a market-leading national price cap of 116.7p per litre for unleaded and 118.7p for diesel.

Income bracket differences

This month’s income tracker again shows a differing situation for disposable incomes depending on gross income.

Only the richest 20% saw their average spending power rise in January, as discretionary incomes grew by 1.5%, despite gross income growth for this group (before tax and essential spending) slowing quarter on quarter.

While the squeeze in discretionary income continues for now, inflation is expected to fall back as the year progresses, meaning there could be better news for households on the horizon.

Kay Neufeld, Economist, Cebr, said: “For UK households, the new year started with more bad news for discretionary income growth. Inflation remains stubbornly high with some of the key spending categories for households seeing the strongest increases such as electricity, clothes and recreational goods and services. While the impact of the sterling depreciation on prices starts to fade, the risks are that a tighter labour market leads to higher domestic inflationary pressures. As long as the current trend in accelerating wage growth holds, however, households can hope that their income growth will at least match the rate of price increases towards the middle of the year.”