Households have been forced to cut their spending, as wages struggle to keep up with rocketing gas and electricity bills.
The average UK household had £157 per week of discretionary income in May, which is down by 0.5 per cent, or £1, on a year earlier, according to figures from Asda’s Income Tracker.
This figure remains significantly below the £165 peak which was seen earlier in 2010.
Rocketing gas and electricity bills
According to experts, this drop in disposable income is due to rocketing gas, electricity and water bills, which are further straining the finances of cash-strapped families.
Indeed, this drop is despite the fact that personal tax allowance was increased to £9,440 in the current tax year – up from £8,105 a year earlier. This should mean that families are slightly better off, as the amount of income they pay tax on was cut by over £500 per earner.
Asda chief executive Andy Clarke said: “Last month the increase in personal tax allowance relieved the pressure on family budgets, as green shoots in the economy started to emerge.
“However, the reality of three years of near continuous decline in disposable income means families don’t feel any better off. The fluctuation of disposable income levels throughout 2013 further demonstrates the fragility of spare cash available to families, which is crucial to stimulating economic growth.”
Air fares and clothing pushing up inflation
This comes after recent figures highlighted the financial plight of consumers, with sky-high air fares and increasing clothing and footwear costs lifting inflation being higher than was anticipated.
The Consumer Prices Index inflation rose to 2.7 per cent in May – up from 2.4 per cent in April, according to the Office for National Statistics (ONS).
This means that inflation is still sitting above the Bank of England’s target of two per cent. The last time this figure was achieved was 2009.
Indeed, inflation is expected to rise even further over the coming months, with economists predicting a peak of three per cent. However, after this point it is expected to begin a “slow but steady” drift down.
This will be little comfort to consumers however, with inflation continuing to significantly outstrip wages. Average earning increased by just 1.3 per cent in the year to April, and 0.7 per cent on the previous month, according to the ONS.
Drop in discretionary spending power
Rob Harbron, economist at the Centre for Economics and Business Research, underlined that households are struggling to keep up with the rising price of day-to-day essentials, meaning that discretionary spending power is £8 per week lower than it was in 2010.
“Although reduced motor fuel costs, higher tax free personal allowances and solid job creation in the private sector have helped support household finances, the weakness of earnings growth, capped benefits growth and above-target inflation remain ongoing pressures,” he continued.
Asda’s research works out disposable income based on the money that is left after essentials like taxes, food, bills, transport, clothing and housing costs have been taken into account. The good news is that disposable income has seen a rise from a low of £151 in late 2011.