UK household spending power rises over the summer months – led by hot weather and the ‘World Cup euphoria’ effect
The latest figures from the Asda Income Tracker reveal that:
- Family spending power was up by £4.40 year-on-year in July – an annual increase of 2.2%
- Income growth accelerates for low income households, which is bolstered by the lowest levels of unemployment for 40 years
- However, overall spending power for the two lowest income groups has still decreased
- Fuel inflation reached highest level since March 2017
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 latest report can be found here
YEAR-ON-YEAR CHANGE
Last month, family spending power was up by £4.40 a week year-on-year in July – amounting to a 2.2% annual increase in average family spending power.
The rise marks the seventh consecutive monthly increase in the Income Tracker – a feat last achieved during the extended spending power increases ending in March 2017.
The majority of households are also enjoying a spending power increase with modest wage growth being sufficient to offset increases in the cost of living.
During the summer months, wealthier households spent more overall on alcohol and restaurants, though poorer households spend higher shares of total income on food. This uptick was attributed to a combination of the summer heatwave in the UK and the success of the England team at the World Cup, boosting spend as they reached the semi-final.
The latest labour market data show that unemployment decreased further to 4.0% in the three months to June. The UK’s unemployment has not been lower in over 40 years.
Meanwhile, inflation as measured by the Consumer Price Index rose to 2.5% in July, up from 2.4% in the previous month, marking the first increase in inflation in 2018.
This was due to rising fuel prices – which are at their highest since March 2017 – cancelling out decreases in the falling prices of goods such as clothes, toys and games.
MORE INCOME, BUT LESS TO SPEND FOR LOW INCOME FAMILIES
The figures produced for Asda in partnership with the Centre for Economics and Business Research (Cebr), also reveal that whilst income growth for low income households is on the up, spending power of the two lowest income groups actually continues to shrink.
Compared to April 2018, growth in gross incomes last month has accelerated for the three lowest income quintiles, with the lowest income group benefitting from a rise in social benefit receipts.
However, elevated inflation in combination with weak wage growth continue to take their toll on low-income households, with those on low incomes particularly hit by increases in fuel and energy prices.
The July figures show that the lowest income group recorded a decrease of 6.2% on the year in their family spending power, standing now at -£32 per week.
Whilst the rate of decline is slowing, the lowest earning 20% of the UK still have higher essential costs than income – which leaves a negative disposable income.
The second lowest income quintile also had to endure another month of shrinking discretionary income, falling by 1.5% to £41 per week.
In contrast, the two highest income quintiles saw comfortable growth in their family spending power with modest wage growth being sufficient for them to offset increases in the cost of living.
This was despite the overall slowdown in wage growth observed over recent months, which meant that the highest income group has seen a slowdown in income growth from 2.8% in April to 2.6% in July.
Kay Neufeld, Managing Economist, Cebr, said: “After a tough 2017, the first half of 2018 has seen consecutive increases in the ASDA Income Tracker.
“Low unemployment and record-high employment rates keep up the pressure on wage growth. At the same time, inflationary trends have subsided across most categories, though rising oil prices are a source of worry for motorists.
“Going forward, family spending power growth across the country is bound to remain limited unless employers lift the lid on wage growth over the coming months.”