Press Centre

Family finances fall for second consecutive month

Asda Income Tracker shows weak earnings growth causes family finances to decline as inflation remains high

  • 3.8% year on year decrease in discretionary income of average UK household
  • Weaker earnings growth means this is the second month of decline in family spending power
  • Inflation still at upper limit of target range

According to the latest Asda Income Tracker, the average UK family was £6 a week worse off in February 2010 than a year earlier.

Following downward revisions to estimated average earnings growth in January, families have now had two consecutive months of annual reductions in spending power. Discretionary income fell by 4.7% in January 2010 and by 3.8% in February 2010 resulting in the average UK household having £149 a week of discretionary income in February 2010.

So far in 2010 weaker earnings growth has had the most significant impact on family spending power, which has not been helped by relatively strong price rises for goods and services due to the VAT reversal. Over the three months to February 2010 gross incomes were estimated to rise on average by 1.4% year on year. This is much weaker than the 4.0% – 4.5% earnings growth that was typical before the recession. Over the same period the cost of essentials rose by 3.1%. This has eroded average family spending power relative to last year.

Compared to a year ago the price of transport rose by 10.5% in February. This is slightly less than the 11.0% increase between January 2009 and January 2010, but is still a significant rise. According to the AA, national diesel and petrol prices were relatively flat in February 2010 compared to January 2010. Petrol prices fell by 0.3% and diesel prices were unchanged over the period. In terms of year on year growth, however, prices were still significantly higher. Petrol prices were up 23.3% and diesel up 12.9% in February compared to a year ago.

The two main factors improving spending power relative to a year ago are the cost of mortgage repayments and utility bills. However, the average cost of mortgage repayments has risen by 3.2% since April 2009. Overall utility prices were down 1.1 per cent in February year on year. Electricity costs were down 8.0% and gas prices were down 8.4% compared to a year ago.

Charles Davis, the economist at Cebr who compiles the report for Asda, said:

“The Asda Income Tracker reveals discretionary income has fallen year-on-year January and February 2010. Despite a large reduction in claimant count unemployment in February, earnings growth remains exceptionally weak and inflation is still high. The one positive factor is that a large part of the high inflation rate is explained by the VAT rate reversal. Hence, the Bank of England can be slightly less concerned about wider inflationary pressures. But the bottom line is that households’ real spending power has fallen; the economic environment is still tough.”

Andy Bond, Asda president and CEO said:

“Since just before Christmas we have seen discretionary spend depleting, and in February 2010 UK families were £6 worse off than in the same month last year. This is a significant drop from the highs of six months ago where families had £8 a month more to spend. It’s tough out there – and shoppers need our help.”

Claimant count unemployment decreased by 32,300 in February compared with January, while the month on month increase in January was substantially revised downwards. The number of individuals on the claimant count has fallen by approximately 48,000 since October 2009. However, the labour market is expected to remain weak during 2010 with the claimant count expected to rise and earnings growth remaining around 1.0%.

Download the report

Posted in Press Centre on 31 March 2010