Customer spending power increases as inflation has passed its peak

The latest figures from Asda’s Income Tracker reveal that:

  • 2018 outlook improves as family spending power returns to growth
  • Northern Ireland and London see gross income rise fastest in Q1 2018, with positive trend in family spending power growth across almost all regions
  • Inflation falls back as price rises for fuel and leisure slow down
  • However, compared to a year ago, family spending power has stagnated in Q1 2018 following months of high inflation and slow wage growth

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 – offering a ‘state of the nation’ view of UK household finances.

Here is the latest Income Tracker Report for Feburary:

YEAR-ON-YEAR CHANGE IN ASDA INCOME TRACKER

In February 2018 family spending power rose by £1.87 compared with the same month a year earlier, equivalent to a 0.9% increase.

This marks the first gain in the Asda income tracker since July 2017.

The news of ‘green shoots’ as we enter the Springtime comes as inflation now seems to be passed its peak with the exchange rate effect of the post-Brexit fall in the pound moving out of the statistics.

Inflation (as measured by the Consumer Price Index) stood at 2.7% in the year to February, down from 3.0% in the previous month, as inflation slowed in a number of categories.

Transport inflation, a main driver of the headline rate in previous months, fell to 2.8% - the lowest rate since November 2016.

Fuel price inflation fell to the lowest value since August 2016, easing the pressure on households’ budgets.

These falls were partly offset by high price growth for electricity as well as inflation in alcohol and tobacco prices.

Price growth in restaurants and hotels also fell from 3.1% in January to 2.5% in February.

However, inflation for goods and services in recreation and culture stood at 3% in February and was the single largest contributor to the headline rate.

MIXED PICTURE FOR GROSS INCOME GROWTH ACROSS THE UK’S REGIONS

Gross income growth accelerated for most regions in Q1 2018, compared to the same quarter last year.

Only a handful of regions saw gross income growth slow: the East Midlands, Yorkshire and the Humber, North East and Scotland.

UK-wide gross income grew at 2.3% in Q1 2018, half a percentage point above the rate seen in the first quarter of 2017.

The tight labour market has led to gains in wage growth across most regions, with London and Northern Ireland seeing the fastest growth rates at 3.1% and 3.6%, respectively.

The regions which experienced slower gross income growth compared to the start of 2017, are those with a high share of jobs in the retail and accommodation and food sectors, where wages have grown only modestly.

REGIONAL OUTLOOK ON FAMILY SPENDING POWER

In the first three months of the year, strengthening income growth has supported the Asda income tracker in almost all regions, with only the North West and the East having seeing declining growth in family spending power between Q4 2017 and the first quarter of the New Year.

Even among the regions which experienced a slowdown in family spending power, the picture looks somewhat better in Q1 than in the previous quarter.

Households in the East Midlands saw the steepest year on year decline in disposable income at -2.8%, followed by Yorkshire and the Humber (-1.8%) and the North East (-1.6%).

Buoyed by strong income growth, Northern Ireland saw the biggest increase in the income tracker in Q1 2018 with an annual increase of £6 to £107. At 6.4%, household spending power grew at nearly twice the rate seen in London (3.4%), albeit from a much lower base - discretionary income is still only 39% of the average in London.

Family spending power in the capital increased by £9 over the year to Q1 2018, the largest pound-value increase among the regions and lifting weekly discretionary income to £275.

However, whilst UK-wide average family spending power stood at £200 in Q1 2018, when compared to the same quarter in 2017, it shows that overall family spending power has stagnated in most regions in the last 12 months.

Six of the UK’s twelve regions saw changes of less than 1% in family spending power, underlining the difficult situation households found themselves in over 2017.

The East Midlands saw discretionary income decrease by £5, equivalent to a fall of 3%. The region has a large manufacturing sector, which saw weak wage growth up until very recently as well as a larger than average public sector workforce.

The South East, East and London all benefit from a high concentration of well-paying jobs in the technology sector, boosting family incomes.

Kay Neufeld, Economist, Cebr, said: “After a difficult 2017, the increase in the ASDA Income Tracker provides households with a welcome break from the ongoing squeeze on family incomes. After remaining stubbornly high for months, inflation is finally slowing down while wages continue on a steady upwards trend.

“The regional picture shows that especially those regions with in-demand industries such as manufacturing and tech fare well as workers can command higher wages. The uptick in the Income Tracker gives reason to be cautiously optimistic for the 2018 outlook although households still face numerous downside risks including interst rate rises by the Bank of England and another inflationary spike due to the tight labour market later in the year.”

ENDS