Families had almost £200 a week to spend on leisure or tuck away in savings in January as incomes rose more quickly than living costs.
Asda’s spending power index rose to a new record of £197 in the first month of the year, an annual increase of £12, because of falling food and fuel prices.
Another year of rising spending power is also in store thanks to the price falls, Andy Clarke, Asda’s chief executive predicted. “The outlook for 2016 is positive for UK households, with incomes increasing and employment buoyant,” he said.
“Whether families choose to save their extra income or boost spending on leisure, treats or everyday essentials remains to be seen. The good news for consumers is that the competitive retail environment is translating to lower prices across the board.”
Wage growth has been stalling, with average weekly pay rising by only 1.9 per cent on an annual basis in the final quarter of last year. Inflation has risen to its highest since January 2015 but remains low at 0.3 per cent, meaning that households are still enjoying improving living standards. The improvement is slowing, however. Asda found that the annual increase in spending power had eased for a fourth consecutive month.
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Sam Alderson, an economist at the Centre for Economic and Business Research, which helped to compile the report, said: “Although growth in family spending power has declined in the latest data, the overall picture is positive. Consumers have much more money to spend than a year ago.”
Household income was £743 a week in January, according to the Asda tracker. From that, it took £118 of taxes and £428 of essential living costs such as food, clothes, education, transport and housing costs to get to the £197 of spending power.
Spending power remains strong because the cost of essential items is still declining, despite the slight pick-up in inflation. Between December and January prices fell on items including food, drink and fuel, as well as clothing and footwear because of early new year sales.
Mortgage costs were down 0.7 per cent on the back of expectations that interest rates will be on hold for longer. The ongoing supermarket price war also has been helping, as food and non-alcoholic drinks prices were 2.6 per cent lower. Petrol prices were off 7.3 per cent. Overall, in the first month of 2016, the year-on-year price growth for essential items remained steady at -0.1 per cent.
Employment growth has continued to lift spending, with 521,000 more people in work over the year, providing a general boost for economic demand. Cheap oil is driving down the cost of non-essential travel, making holidays more attractive. Air fares fell 2 per cent in January, compared with last year.
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Consumer confidence indicators suggest that families are as optimistic about their personal financial wellbeing as they have been in years, reflecting strong employment, gradually improving wages, low inflation and record low interest rates.