01/05/12 UK Families £10 A Week Worse Off - Disposable income lowest since 2008

  • UK families were £10 a week worse off in March 2012 compared to the same month a year earlier, the joint-lowest level of disposable income since November 2008.
  • Average UK household had £144 a week of discretionary income in March, 6.5 per cent lower than a year earlier
  • Rising unemployment and persistently high inflation rate driving disposable income down
  • Regional Income Trackers highlight widening disposable income gulf in UK

The latest Asda Income Tracker has revealed that family spending power fell by £10 a week in March 2012 – reversing the improving trend seen in recent months. This left the average UK family with £144 of weekly disposable income, 6.5 per cent down from the same time last year.

The official measure of the rising cost of living was up in February, as the consumer price index (CPI) rose over the year by 3.5 per cent, well above average earnings growth which remained weak at just 1.6 per cent. When slow income growth is added to high inflation on the cost of basics it’s clear that family spending power is being squeezed in both directions, resulting in disposable income levels eroding further.

As well as those that are in work seeing small year on year salary increases, well below inflation, tough conditions in the labour market mean unemployment is still having an impact despite slight year-on-year improvements in the headline rate. Balancing the two conflicting elements, family income growth is still very fragile, with the improving cost of basics overshadowed by the high number of workers becoming unemployed.

Despite some recent improvements in the cost of utilities and transport with a drop in wholesale prices and energy providers making cuts to bills in March, they are still two of the main factors putting pressure on discretionary spend. The cost of electricity and gas remains well above that of last year and are rising again by 8.1 and 16.1 respectively in March. Petrol and diesel prices by 4.2 and 4.7 per cent respectively over the year, with prices at the pump hitting an all-time high during the month.

Regions feeling different pressures

Spare cash is also declining year on year across every UK region, with annual drops remaining severe in the first quarter of the year. The North-West of England saw strongest pressure on family budgets over the past year – with employment conditions in the region reducing spending power. Northern Ireland continues to suffer steep declines, with the cost of essentials making up a larger proportion of family budgets, and therefore most impacted. Families in NI had just £83 a week of discretionary income in Q1 2012 – just over half that of the national average.

London and the South East fared relatively well over the first quarter, with essential spending making up a smaller proportion of household budgets. Discretionary spend in London was £184 per week in Q1 2012, compared to a UK average of £144, and four times higher than cash available to families in North West and Northern Ireland. This gap continues to widen, demonstrating the difference in economic challenges faced by families across the UK.

Asda Mumdex research has revealed that two thirds of mums budget more now that they did a year ago, looking for ways to make their money go further and choosing budgeting over spending on credit. Two fifths of Asda Mums (39%) also say they have made changes to their lifestyle because of the financial crisis, with 36% struggling to pay for the essentials in the last year, and nearly a quarter of mums (23%) borrowing just to get by.

Andy Clarke, Asda President and CEO, said: “It’s worrying to see the cost of essentials creeping back up, increasing the demands on family budgets and putting pressure income growth.

“Unemployment drove the continued drop in disposable income in March and throughout the quarter, with a growing divide between the nations and regions.

“We’re firm in our commitment to help tackle this in 2012, by creating new jobs, working with new communities and bringing Asda value where it matters most to families across the UK.”

Charles Davis Managing Economist, Cebr comments:

“Family budgets in 2012 are continuing to be squeezed by the three pressures of high unemployment, very weak wage increases and stubbornly elevated inflation.

“While growth in the price of essentials is likely to fall back slowly this year, the current tough conditions in the UK labour market look set to prevail. Average earnings growth is expected to trail inflation over 2012, keeping pressure on household incomes. As such we are likely to see continuing declines on the Asda Income Tracker over the coming months, although at a slower pace than during 2011.”

Last week Asda cut up to 2p a litre from the price of both unleaded and diesel, the first fall in prices in 2012. A drop in global oil prices, and the strengthening of sterling against the US dollar have reduced wholesale costs, enabling the supermarket to pass those savings on to hard pressed motorists.

From Saturday 21st drivers filling up at any of Asda’s 195 forecourts nationwide paid no more than 138.7 pence per litre for unleaded and 143.7 pence per litre for diesel.

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