Press Centre

End of recession brings no improvement to family finances

Asda Income Tracker stalls for the second consecutive month

  • No change in discretionary income of average UK household
  • Earnings growth rises, but still significantly weaker than pre-recession
  • Annual rate of inflation reaches fourteen month high
  • Widespread increase in cost of essentials continues to apply pressure

According to the latest Asda Income Tracker, the arrival of 2010 has not resulted in an improvement in family finances.

January 2010 marks the second consecutive month that the average UK family is no better off than a year earlier. As a result, the average UK household had £164 a week of discretionary income in January 2010, a marginal 0.1% higher than a year earlier.

The continued pressure on family finances is in spite of an increase in the rate of growth in gross income, which has risen to 2.5% year on year in January, compared to an increase of 1.7% year on year in December. This is higher due to base effects from steep drops in early 2009 at the recession’s lowest point.

Data from the Office of National Statistics has revealed that the annual growth in earnings has declined substantially during this recession; averaging 1.4% across 2009. Although, in recent months earnings growth has stabilized, in general earnings growth is still much weaker than the 4.0% to 4.5% that was typical before the recession.

The increasing earnings growth was also offset by the increasing cost of most essentials in January. The annual rate of inflation reached its fourteen month high with food price inflation rising by 1.9% in January relative to a year ago, compared to a 1.5% increase in December.

One of the main drivers behind reduced family spending power has been the rise in transport costs; up as much as 11.0% in January compared to a year ago. This is up from an 8.7% increase in December.

Mortgage interest repayments contributed less to the rise in discretionary income compared to last month. While reductions in mortgage interest repayments relative to a year ago are still occurring, compared to April, there has been a rise in mortgage interest repayments of 3.2%. This suggests that although base rates have remained unchanged banks are gradually edging up the cost of mortgages, decreasing family spending power in typical UK households.

Charles Davis, the economist at Cebr who compiles the report for Asda, said: “In January annual growth in discretionary income was flat for the second successive month. Although the recession has ended, the Asda Income Tracker shows that real disposable income growth remains weak. With earnings growth across the year set to remain historically low, inflation above target and possible tax rises to come, the outlook for the UK consumer remains cautious.”

Andy Bond, Asda president and CEO said: "This latest economic snapshot reflects what our customers already know, that 2010 is shaping up to be a tough year.

“Despite the official end of the recession, our customers are telling us they’re still worried about job security and balancing the family finances. With transport costs on the up and food inflation rising, we’re working hard to keep prices down for our customers and would urge other businesses to do everything they can to help ease the financial strain.”

Claimant count unemployment increased by 23,500 in January compared with December, wiping out the reductions seen in November and December of 2009. As a result, over the three months to December, the unemployment rate remained unchanged from the three months to September at 7.8%.

The labour market is expected to remain weak during 2010 with the claimant count expected to continue to rise and earnings growth remaining around 1.0 per cent.

Download the report

Posted in Press Centre on 24 February 2010