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Increasing cost of essential items slows growth in families' spending power

Published 28/10/2016

UK families had £201 of discretionary income last month
UK families had £201 of discretionary income last month

The growth in families' spending power has fallen to single digits for the first time in almost two years following a rise in essential item inflation, a report has found.

UK families had £201 of discretionary income last month, £9 or 4.7% more than the same period last year, according to Asda's Income Tracker.

However, the figures mark the first time in 22 months that the amount has dropped under £10, the report, compiled by the Centre for Economics and Business Research (Cebr), said.

The increase in essential item inflation, which rose 0.4% in September, contributed to the decline, driven mainly by a rise in the cost of clothing and footwear, housing and utility bills.

The price of vehicle fuel also rose 1.4% due to the weakening pound, the tracker shows.

An increase in restaurant and hotel prices, the cost of communications such as broadband and mobile bills, and alcohol and tobacco costs also contributed to the slowdown in spending power growth.

The report warns that with the value of sterling expected to remain weak, rising prices for imported goods will contribute to a higher rate of inflation over the coming months.

In contrast, food and non-alcoholic drinks bucked the trend in September with prices falling on average by 2.3% year-on-year - a 0.1% decrease on August.

An Asda spokesman said: "As a retailer, it's encouraging to see that UK families were able to benefit from a decline in food prices during September, especially as inflation and a weakened pound raised the cost of other essentials items.

"Consumers are still £9 better off than the same period last year, however the drop into single-digit spending power growth for the first time in almost two years will cause some concerns for consumers, so we will be watching the trends carefully over the coming months."

Cebr economist Kay Neufeld said: "Household incomes continue to increase, but rising inflation is starting to take its toll on spending power. The weak pound means that price growth is going to accelerate further in the next months, increasing the cost of the weekly shopping.

"In September, for the first time in nearly two years, households' weekly spending power has risen by less than £10. After a long period of unusually low inflation, we can expect to see price increases for many essential items over the next months. For 2017, decreases in spending power cannot be ruled out."

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