According to Asda’s latest income tracker, middle-income families have experienced the first decline in disposable income since September 2023.
This came as disposable incomes fell for 60% of UK households in the month of July following a “sharp rise” in inflation, which reached 3.8% in July. Asda highlighted that this was the highest level so far this year, driven by “sustained increases” in essential living costs.
The tracker found that the cost of essentials (food, drink, transport etc) had risen by 5.1% year-on-year, which it said “put further pressure” on household budgets.
As part of its first drop in almost two years, disposable income for middle-income households (approx £41,000 earnings) saw disposable income decline by 1.6% in July.
Lower-income households experienced an 11.1% drop in spending power, which Asda said had resulted in a shortfall of £73 per month between earnings and essential spending. The retailer went on to say that although higher-income households remained “more insulated” – with income growth still outpacing rising costs – the gap is “narrowing”.
Looking forward, the tracker found that households would be “likely to feel the squeeze” in the months ahead, with inflation expected to stay above the Bank of England’s 2% target well into 2026.
“While wages are expected to rise over the remainder of the year, persistently high inflation will put continued pressure on purchasing power.”
Sam Miley, head of forecasting and thought leadership at Cebr, said: “Inflation accelerated to 3.8% in July, the highest rate since January last year. The rise was driven primarily by sharp price increases in essentials, such as food and non-alcoholic beverages.
“This has been reflected in the income tracker, which showed only modest growth of 2.4% in the year to July. While wages are expected to rise over the remainder of the year, persistently high inflation will put continued pressure on purchasing power, weighing on further gains in the tracker.”
