Press Centre

Family spending power remains down on a year ago

Family spending power remains low as the cost of essential goods outstrips earnings growth

  • £4 a week decline in family spending power compared with the same month a year ago
  • September was the ninth consecutive month of annual decline in the Asda Income Tracker
  • Average UK household discretionary income was 2.1 per cent lower than in September 2009
  • Gross incomes (excluding bonuses) were 2.6 per cent higher in September compared to the same month a year earlier
  • The cost of essential goods and services was 3.3 per cent higher in September 2010 than in September 2009.

Just hours ahead of the Government’s Comprehensive Spending Review (CSR), data from the latest Asda Income Tracker showed the average UK family had £4 a week less disposable income this month than a year earlier. Household discretionary income was 2.1pc lower than in September 2009 – the ninth consecutive month of decline in household spending power.

The average family had £177 per week to spend in September, down from £181 this time last year. The decline in spending power in the year to September 2010 was a result of household net income growth failing to keep pace with rising prices. Annual inflation remained unchanged at 3.1% in September – above the upper bound of the Bank of England’s target range. Essential goods prices have been driven up by rising commodity prices and global labour costs and the return of VAT to 17.5% at the start of the year continued to cause an elevated level of annual inflation.

The main factors putting downward pressure on family spending power in September were clothing & footwear, prices of which rose by 6.4 per cent. This was the largest rise for an August to September period on record. Clothing & footwear prices were 0.9 per cent higher in September than in the same month last year – the first time annual clothing & footwear price inflation has been positive in over 18 years. The annual rate of food and non-alcoholic beverage price inflation has risen from 4.1 per cent in August to 5.1 per cent in September which placed upward pressure on the annual inflation rate.

The most significant area of spending which has helped with household’s discretionary income was transport costs, which fell by 3.4 per cent between August and September.

Unemployment on the claimant count measure continued to rise in September – the second consecutive month in which unemployment has risen.

Average weekly earnings growth picked up slightly in August with average earnings (excluding bonuses) over the three months to August rising by 2.0 per cent year-on-year, the highest annual growth rate since June 2009. However, this was outstripped by annual consumer price inflation which remained unchanged in September from August at 3.1 per cent. Inflation remains stubbornly above the Bank of England’s 2.0 per cent central target.

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

“Family spending power was still down on the previous year in September. The growth in household earnings as the economy recovers from recession is failing to keep pace with rising prices of essential goods and services.

“Soaring global commodity prices and rising world labour costs are starting to feed through into higher essential goods prices in the UK. Cotton prices are currently trading at a 15 year high and many clothing retailers have warned that they will inevitably have to raise their prices in response to this. The effect of the summer drought in Russia on wheat prices is also continuing to feed through into rising food prices.

“The rise in VAT to 20% in January 2011 will further squeeze household spending power over the next few months.”

Andy Clarke, Asda president and CEO, said:

“The ninth consecutive month of decline in family spending power is significant and adds further weight to what our customers have already been telling us – it’s going to be a challenging Christmas for everyone.

“In fact, shoppers are already stocking up on toys and big tins of chocolates in a bid to spread the cost of the festive period.

“We’re acutely aware of our responsibility to put our shoulder to the wheel and do everything we can to keep lowering costs, and keep the cost of living down for all our customers.”

You can download the full Income Tracker report here.

Posted in Press Centre on 20 October 2010