Press Centre

Summer break for spending power squeeze but disposable income still down year on year

UK families were £9 a week worse off in June 2011 than they were a year ago

  • June saw a £9 a week fall in family spending power compared to the same month last year
  • Average UK household had £167 a week of discretionary income in June 2011, 5.1 per cent lower than a year earlier
    *Slight rise in average earnings growth, but still well below pre-recession levels

The latest Asda Income Tracker has revealed that family spending power fell by £9 per week in June 2011, leaving the average UK family with £167 in disposable income – 5.1 per cent down from this time last year.

Consumer price inflation fell in June from 4.5 per cent in May to 4.2 per cent, slightly easing the pressure on real household incomes with a falling in the price of discretionary items such as games, toys and hobbies. However, this is unlikely to signify the start of a downward trend, with the price of essential goods and services continuing to grow.

Whilst average earnings growth increased marginally in June, recruiting conditions remained constrained. The report notes that average earnings rose at an annual rate of 2.1 per cent in the three months to May however there was a notable fall in earnings growth of the public sector, possibly as a result of the pay freeze that came into effect in April.

The tough outlook persists as the rising costs of basics continue to put pressure on family budgets. Transport costs were again the strongest contributor to the headline rate of inflation in June, with the cost of getting around is now up to 16 per cent higher than a year ago, with recent data from the AA showing the cost of petrol rose by 15.2 per cent and diesel by 16 per cent from June 2010 to June 2011.

This month’s tracker also shows the impact of the squeeze in disposable income at a regional level. London, the South East and the East of England are again the top three regions in terms of discretionary spending power in Q2 2011, unchanged from Q1 2011. Discretionary spend in London was £283 per week in Q2, compared to a UK average of £168, although down from £291 in Q1. Northern Ireland continued to suffer from the lowest household spending power, with the Income Tracker for the region dropping further to just £80 per week in Q2, from £87 the previous quarter.

Interestingly, London now has slowest gross income growth, as the employment rate over the past quarter fell by 0.3 percentage points in the three months to May from the previous quarter, leading to slow gross income growth in the region. The employment rate rose by 0.6 percentage points in both Scotland and Wales over the same period. This helped to support income growth in Q2, leaving Scotland as the region with the fastest expansion in gross incomes, and Wales close behind.

Andy Clarke, Asda President and CEO, said:
“Nationally, shoppers’ disposable incomes are still down year-on-year. While it’s a relief to see a significant improvement on last month’s record drop, only time will tell whether this is a one-month blip or the beginning of a trend.”

“Across the regions, it’s a mixed picture. While spending power dropped everywhere, the fall in London and the South East was relatively mild. That contrasts with a much more dramatic fall in Northern Ireland and the North West where the higher car usage, and dependency on petrol, leaving a larger hole in household budgets.”

Charles Davis Managing Economist, Cebr comments:
“Some pressure eased off household finances in June, as the price of several discretionary items fell and average earnings growth picked up marginally. Price discounting by retailers has pushed down the price of toys, books and electronic goods.

“Nevertheless, the Asda Income Tracker shows that spending power remains down on a year ago as the price of essential goods continues to rise. Utility price increases later in the year mean the UK consumer is not out of the woods yet and we could see inflation rising again over the coming months.”

Download the full report

Posted in Press Centre on 20 July 2011