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Struggle continues for UK families as spending power falls again

The Asda Income Tracker continued to fall in October 2010

GENERAL MERCHANDISE

Struggle continues for UK families as spending power falls again

The Asda Income Tracker continued to fall in October 2010

* £4 a week decline in family spending power compared with the same month a year ago
* Tenth consecutive month of decline in the Asda Income Tracker
* Gross incomes were 2.2 per cent higher over the three months to September compared to the same period a year earlier
* The cost of essential goods and services was up 3.3 per cent in October 2010 than in October 2009

With the festive season fast approaching, the Asda Income Tracker has revealed that the average UK family had £4 a week less to spend in October compared to a year ago. This marks the tenth consecutive month of falling household spending power, with household discretionary income down 2.0 per cent than in October 2009.

The average family had £176 per week to spend in October, down from £180 this time last year. The continued reduction in family spending power in October was the result of annual net income growth failing to keep pace with the rise in the cost of essential goods and services. The prices of goods and services have been driven up as the supply of many essential goods has been disrupted by poor weather, sterling weakness feeding through to consumer prices, the VAT increase in January 2010 and demand from emerging countries pushing up the price of commodities, including oil.

Inflation continues to edge up further with annual consumer price inflation at 3.2 per cent in October from 3.1 per cent in September. Inflation continues to remain persistently above the Bank of England's 2.0 per cent central target.

The main factor putting downward pressure on family spending power in October was transport, which remained the single most important element of consumer price inflation, accounting for approximately 30 per cent of the increase in the headline rate. According to the AA the cost of unleaded petrol rose by 12 per cent between October 2009 and October 2010.
Notably unemployment fell unexpectedly by 3,700 between September and October. Although the fall has come as a surprise to most economists, the size of the fall is modest and suggests a move towards part-time and self-employment. Full-time employment over the three months to September was down by 0.2 per cent compared to the same period last year, while part-time employment, in contrast, increased by 4.2 per cent. Asda has stepped up efforts to create jobs through a combination of new stores, home shopping expansion and Netto conversions and on 16 November pledged to create more than 7,500 new jobs in 2011.

Charles Davis, the economist at Cebr who compiles the report for Asda, said,"October marks the tenth month in a row where family spending power has fallen relative to the previous year. Annual household earnings growth has continued to fail to keep pace with the rise in the price of essential goods and services.

The Bank of England's November Inflation Report shares our view of inflation remaining above target for the whole of 2011. Sterling's past depreciation continues to feed through to consumer prices. This is being compounded by rising commodity prices, due to supply side shocks and demand from emerging economies.
Looking forward, the VAT hike to 20 per cent in January will add further pressure on household budgets in 2011, as will news of price hikes in the utilities sector of up to 7 per cent in December."

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