UK household spending power has fallen to its weakest level in six months as rising transport, housing and energy costs outpace growth in household incomes, highlighting renewed pressure on family finances.
The latest Asda Income Tracker found that essential household costs rose 3.9 per cent year on year in August, exceeding the 3.8 per cent increase in incomes over the same period.
The squeeze left households with an average of £260 a week after paying taxes and essential bills, according to the supermarket’s measure of disposable income.
Growth in spending power slowed to 3.4 per cent during August, its weakest rate since March, as higher essential costs absorbed a growing share of earnings.
The pressure was particularly acute among lower-income households. Their spending power fell 1.9 per cent over the past year, with families in this group facing an average weekly shortfall of £75 between their income and the cost of essential spending.
The figures underline the fragile position of household finances as inflation remains elevated and borrowing costs threaten to add another layer of pressure.
Asda said household budgets were likely to remain under strain in the months ahead, with inflation rising to a five-month high of 3.1 per cent and the Bank of England signalling that interest rates could rise again if price pressures persist.
Pushpin Singh, managing economist at Cebr, which produces the tracker, said: “Growth in the Asda Income Tracker slowed further in August to 3.4%, its weakest pace since March. While earnings growth has picked up slightly, it was outpaced by a considerable acceleration in inflation.
“Inflation remains the primary risk to household spending power. Rising essential costs and the prospect of higher interest rates could place further pressure on discretionary incomes in the months ahead.”
The figures suggest that the recent improvement in nominal wage growth is providing limited relief where the cost of necessities is rising faster.
For households already facing constrained budgets, the distinction between income growth and spending power is increasingly significant. A higher pay packet does not necessarily translate into greater disposable income when larger proportions are absorbed by energy, housing and transport.
The deterioration also comes at a sensitive point for monetary policy. A persistent inflationary squeeze could leave the Bank of England facing the difficult combination of weak household spending power and renewed pressure on prices.
That would increase the risk that families continue to cut back on discretionary purchases even as businesses face higher costs and policymakers attempt to balance inflation control with economic growth.
With lower-income households already spending more on essentials than they earn on average, the latest figures point to a widening divide in the ability of families to absorb further increases in living costs.
Leave a Comment