Press Centre

Family spending power falls for the eighth month in a row

Pressures on the cost of living lead to another fall in family spending power.

  • £5 a week decline in family spending power relative to the same month in 2009
  • 2.9 per cent year on year decrease in discretionary income of average UK household
  • The rate of consumer price inflation remained elevated and unchanged at 3.1 per cent
  • The cost of spending on essential goods and services increased by 3.4 per cent year on year in August

There was a year-on-year decline in the Asda Income Tracker of 2.9 per cent in August 2010. This equates to £5 per week decrease in family spending power compared with the same month in 2009. This is the eighth consecutive month that family spending power has fallen.

The average family had £175 per week to spend in August, down from £180 this time last year. The cost of living continued to rise at an elevated pace of 3.1 per cent. At this rate, inflation was still above the upper bound of the Bank of England’s target range and marked the seventh month this year in which this has been the case. Regular pay growth remained weak, increasing by 1.8 per cent in the three months to July year-on-year. This is down from annual growth of around 4.0 per cent before the recession. The Russian grain export ban combined with floods in China and Pakistan meant that food and clothing prices have steadily risen.

The key factors putting downward pressure on family spending power included transport; although inflationary pressure from transport costs diminished, they still contributed 1.2 percentage points to the headline rate of inflation. As a result the transport category remains by far the largest single contributor to the annual rate of inflation. Food and non-alcoholic drinks contributed 0.5 percentage points to the overall inflation rate. Clothing and footwear was again the only broad area of spending which saw a year on year decline, it fell by 1.7 per cent. This is, however, down from 3.1 per cent annual decrease recorded last month.

In August the labour market showed signs of weakening with the first increase in the claimant count since January. Annual regular earnings growth edged up over the three months to July to 1.8 per cent, from 1.6 per cent in the three months to June, but remains low compared to pre-recession levels.

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

“Family spending power continued to be eroded in August. The cost of an average household shopping basket keeps rising, while earnings growth fails to keep pace.

Events such as the grain export ban in Russia and floods in China and Pakistan serve as a reminder of upside risks to inflation. The joint ILO/IMF meeting in Oslo also highlighted the global nature of the unemployment crisis.

Indeed, Cebr recently forecast unemployment above 10% in some regions of the UK. With this in mind household budgets are likely to come under pressure, with the cost of essential goods and services rising faster than net income"

The latest release comes after Asda launched a new mid-tier ‘Chosen By You’ brand on Tuesday.

Andy Clarke, Asda president and CEO, added; “The numbers show that customers continue to want every pound in their pocket to work as hard as it can.”

“That’s why it’s right our new Chosen By You ranges will not lead to higher prices.”

“Customers still need us to be their price champion.”

Download the full report

Posted in Press Centre on 22 September 2010