Asda Income Tracker shows sharp increase in family spending power last month

· The average UK household had £172 a week of discretionary income in August 2014, approaching the all-time high of £174 last seen in January 2010

· This is now the eleventh month in a row that families have seen their spending power rise year on year

· The increase in August marks the biggest annual increase in the Income Tracker for five months

· Household budgets were boosted this month by a slowdown in essential item inflation thanks to falling fuel, food and non-alcoholic drink prices

The latest Asda Income Tracker shows that family spending power increased year on year in August for the eleventh month in a row as discretionary incomes – the income left once taxes and the spend on essentials like rent, utilities and bills have been deducted – in August 2014, were up £5 a week on the same month a year before.

Household finances were boosted by another slowdown in essential item inflation in August, which weakened to just 1.2% – its slowest rate since December 2009 and down by 0.2 percentage points on July of this year. A drop in the price of vehicle fuel, which fell back 5.7% year on year, contributed to the slowdown. Additionally, food prices were down 1.1% year on year, which was the largest annual decline since January 2003. Overall, consumer price inflation, which represents all goods and services purchased for consumption, has also slowed to 1.5% in the year to August, down from 1.6% the previous month and continuing the trend of below target inflation.

The rejuvenated labour market is also helping to bolster overall household incomes. In the three months to July 2014, there were 774,000 more people in work than during the same period last year. The UK unemployment rate fell to 6.2% – the largest year-on-year decline since 1988. At the same time, levels of underemployment (which refers to workers who are only employed part-time when they need full-time employment, or are in roles that are not making full use of their skills) dropped to 16.5%, down from 18.5% at the same time a year ago.

However, whilst there has been an increase in the number of people in work, as businesses ramp up their hiring, average pay growth still remains low. During the three months to July, regular pay (excluding bonuses) rose by only 0.7% on the year before.

Commenting on the findings, President and CEO of Asda, Andy Clarke, said:

“For almost a year now households have seen a continued growth in discretionary income, boosting confidence that spending power is on the up and helping to steady the ship of the UK economy. A continued fall in food, vehicle fuel and mortgage payment inflation have all contributed to an increase in household finances and I’m now hearing from customers about a real time benefit to their weekly budgets. I remain mindful that interest rates have stayed low for a significant period of time and it’s realistic to expect that this can’t continue in the long term.

“Even factoring in a possible rise in interest rates next year, families can take confidence that the economy has now seen real sustained growth and this trend looks to continue for the rest of 2014.”

Rob Harbron, Senior Economist, Cebr, said:

“It’s encouraging to see inflation on the cost of living falling to its lowest in over four and a half years. This is a factor that is really easing the pressure on household finances.

Slower price growth has helped family spending power to rise for nearly a full year now, as economic recovery has been gradually feeding through into average households.”