UK households have more money to spend thanks to improving economic conditions, but Millennials feel the squeeze

The latest figures from the Asda Income Tracker reveal that:

  • Monthly family spending power was up by £12.72 year-on-year in June – an annual increase of 1.6% to £202 per week
  • Asda Income Tracker rises for the sixth month in a row as households of all age groups see positive spending power growth in Q2 2018
  • However, under 30s spent nearly twice as much on essentials as those 75 and older, and have slowest income growth of all working-age households

The Asda income tracker is a measure of ‘discretionary income’, reflecting the amount of money 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 payments or rent.

The full report can be found here:

Year-on-year change

Last month, family spending power stood at £202 per week, up by £3.18 a week compared to June 2017 (£12.72 a month) – amounting to a 1.6% annual increase in average family disposible income.

The rise marks the sixth consecutive monthly increase in the Income Tracker – a feat last achieved during the extended spending power increases ending in March 2017.

However, the rate of spending power growth has slowed for the third month in a row, weighed down by the rising cost of fuel and utilities.

The latest labour market data show that unemployment held steady at 4.2% for a third reading in the three months to May whilst wage growth continued to drop off. The UK’s employment rate rose to 75.7% which is the highest since comparable records began.

Meanwhile, inflation as measured by the Consumer Price Index remained unchanged at 2.4% for a third consecutive month in June.

This was due to rising fuel prices – which are at their highest in almost four years – cancelling out decreases in the falling prices of goods such as clothes, toys and games.

Age matters as millenials feel the squeeze

The figures produced for Asda in partnership with the Centre for Economics and Business Research (Cebr), also reveal that the cost of essential spending as a percentage of gross income is highest for under 30s at around 65% of gross income for this age group. Whereas, the burden decreases significantly to 54% for those aged 50 to 64.

Housing expenditure as a share of total expenses is highest for the under 30s as rent is included in this category and is the single most significant factor. Average income of the under 30s also shows no sign of catching up with 30 to 49 year-olds, who have the fastest growing gross income.

In Q2 2018, households where the main income earner is aged 30 to 49 saw the biggest increase in gross incomes, at 2.7% year-on-year. The last time another age group’s gross income grew faster was five years ago, as weekly gross incomes for 30 to 49 year-olds stood at £1,001 in Q2 2018, exceeding the £1,000 mark for the first time.

However, growth in weekly gross income for under 30s continued to disappoint as it remained just 0.1 percentage points higher than the income growth of pensioners.

This is despite the fact that the under 30s have to spend the largest share of their gross income on taxes and essential goods and services at 80%. Looking at essential spending alone, under 30s spend nearly twice as much as those 75 and older.

30-49 year olds continued to benefit from a thriving labour market. Cebr analysis indicates that nearly half of consumers in June expected a pay rise, promotion or bonus in the coming 12 months. The middle-aged households also spend the lowest share on housing.

Income growth accelerated for households aged 75 or over from 1.7% in Q1 2018 to 2.4% in Q2 2018.

Kay Neufeld, Managing Economist, Cebr, said: “After five quarters of falls in the income tracker, 65 to 74 year olds see spending power increase again, which means the squeeze on family incomes has ended for all age groups in the second quarter of the year.

“50 to 64 year-olds are the age group with the highest discretionary income at £272 per week, an increase of 2.0% on the same quarter last year. And, 30 to 49 year-olds saw the fastest increase in the income tracker at an annual rate of 2.6%. This was driven by increases in gross incomes, which exceeded £1,000 for this age group in Q2 2018.

“However, the under-30s continue to face an uncertain longer-term future, driven by the cost of rent and rising house prices, versus lower income growth. The result is that the under-30s are spending more money and saving less towards a mortgage deposit, meaning first steps onto the property ladder will likely continue to take longer to achieve.”