Press Centre

Family finances still in decline year on year

Pressures on the cost of living mean annual growth remained weak for the fourth consecutive month

  • 1.3 per cent year on year decrease in discretionary income of average UK household
  • £2 a week decrease in family spending power compared with the same month a year ago
  • Fourth month in a row of weak annual growth in the Asda income tracker
  • Annual rate of inflation rises to 3.4 per cent in March

According to the latest Asda Income Tracker, the average UK family was £2 a week worse off in March 2010 than a year earlier.

The average UK household had £153 a week of discretionary income in March 2010, 1.3 per cent lower than a year earlier. Despite a significant upward revision to earnings data for February, for the fourth month in a row growth in the Asda income tracker was weak.

Gross incomes increased by 2.6 per cent year on year in March 2010, the highest rate of growth since December 2008. The headline figure hides some stark differences for households working in different sectors – while earnings growth in the finance and business services sector has picked up strongly in early 2010, for workers in, for example, the construction and hospitality sectors growth is still weak. Hence, although the economy has emerged from recession and this has boosted spending power for some, for many households real disposable income growth remains weak as cost of living pressures continue.

The cost goods and services increased by more than expected in March 2010, pushing the annual rate of inflation up to 3.4 per cent, up from 3.0 per cent in February and above the Bank of England target. Although, when the impact of indirect taxes are excluded (most notably VAT) the annual rate of inflation was 1.8 per cent. This suggests that while the VAT reversal helped boost spending power a year ago, that the reverse is true today. Moreover, the rise in commodity prices and weak sterling are putting pressure on the cost of essentials. The wider retail price index rose by 4.4 per cent in March 2010 year on year, compared to 3.7 per cent in February 2010. This was the highest rate of inflation on this measure since October 2008.

The main factor putting downward pressure on family spending power in March was transport costs, which rose by 11.3 per cent in March year on year, compared to 10.5 per cent in February. Food costs also rose by 2.0 per cent in March year on year, up from a 1.4 per cent increase in February and utility bills increased by 0.1 per cent in March, up from a 1.1 per cent decrease in February. According to the AA petrol prices increased by 28.1 per cent annually in March and IMF data shows oil prices increased 68.9 per cent over the same period.

Mortgage interest repayments were 4.4 per cent lower in March than the same month last year. This is, however, down from the 10.9 per cent increase seen in February. Clothing and footwear was 2.7 per cent lower in March than a year ago. However, this is down from a 3.3 per cent increase in February year on year as the weaker pound puts upward pressure on prices. While mortgage interest repayments and clothing and footwear have helped to boost family spending power in March, the impact of these effects has been diminishing significantly over the past year.

Charles Davis, the economist at Cebr who compiles the report for Asda, said: “There are currently mixed signals from the labour market; earnings growth has picked up in early 2010 but job creation is still weak so unemployment passed the 2.5 million mark for the first time since 1994. At the same time, the cost of living has continued to rise, with sterling depreciation and commodity price rises playing a key role. The rise in inflation above target caused a small annual decline in the Asda income tracker for the second time in four months.”

Andy Bond, Asda president and CEO said: "Although the income tracker appears to have levelled off this month, our customers are telling us their situation is far from easy.

“With the rising costs of daily essentials such as food and petrol having a real impact on monthly budgets, families are still finding it extremely tough out there.”

Download the report

Posted in Press Centre on 26 April 2010