Press Centre

ASDA income tracker: Weakening earnings growth will put disposable income under new pressures

Compared to recent months, discretionary income has improved as the value added tax (VAT) cut and effect of falling commodity prices helped reduce the cost of living in December to £413 per week. However, with the United Kingdom economy now officially in recession and with the prospect of further a weakening of the jobs market household incomes are likely to come under further pressure throughout 2009.

An increase in weekly family earnings after tax of £20 per week in December 2008 compared to a year earlier was not enough to offset the £24 rise in total spending on essentials.

Andy Bond CEO and President ASDA, “Though the cost of living has come down for families in the last few months a combination of higher import prices due to the weakness of the pound and rising unemployment affecting earnings growth will put household budgets under renewed pressure. We cannot underestimate the impact this downturn is having on UK families and how important it is that action is taken to restore confidence in the banking sector and wider economy”

Charles Davis Cebr Economist, ‘The Asda income tracker showed another slight improvement in discretionary income in December due to the falling price of essentials – led by the VAT cut. However, the improvement in living standards was partially offset by weaker earnings growth as the labour market deteriorated significantly in the final quarter of 2008.’

The VAT cut did help to increase discretionary income compared with November, but weaker earnings growth meant that this did not translate into as much of an improvement in living standards as in more normal labour market conditions.

Following peak inflation in September, the income tracker has risen for three months in succession. Consequently, the year on year fall in the income tracker has shrunk from £13 a week in September to £4 a week in December.

One of the major upward contributors to the squeeze on disposable incomes in 2008 was the rise in the cost of utility bills, which rose by 14.3 per cent over the year to December.

This came as wholesale gas prices rose as much as 78 per cent year on year, reaching a peak in June. Since then, similarly to oil, wholesale gas prices have more than halved. As major utility companies begin to pass on these price falls, disposable incomes will receive a further boost.

The weakest sterling value since the mid 1980s is likely to cause some import price inflation, exerting some upward pressure on UK prices.

For a copy of the income tracker please contact the ASDA press office on 0113 2417829

Posted in Press Centre on 26 January 2009