The average UK household had £158 a week of discretionary income last month, the third consecutive month of slow but steady growth suggesting a return to more stable conditions for household finances.
Discretionary income rose £2 a week year-on-year in December, below the £165 all-time high seen in January 2010, according to the latest Asda Income Tracker.
The Leeds-based grocer said the £2 increase was driven by a sharp downward trend in inflation and a fall in unemployment to 7.1 per cent, the lowest rate in four years.
Asda said that slowing inflation helped to hold down the price of essential items in the run-up to Christmas, providing a much-needed boost to family finances.
A 1.9 per cent fall in food price growth in December to less than half of what it was for most of 2013 was a key driver, while downward pressure in petrol and diesel prices also eased transport costs.
On the negative side, price hikes at the utility firms began to take hold – with the cost of electricity and gas up 8.1 and 7.8 per cent respectively, offsetting some of the gains.
A sharp reduction in the unemployment rate, which fell to its lowest level (7.1 per cent) since February 2009, helped to ease the pressure on household finances.
However weak wage growth at 0.9 per cent, below the rate of inflation, cut discretionary income.
Asda said it was a positive outlook across much of the UK. Only families in the South West and North East recorded a fall in spending power over the last quarter, down £5 and £2 a week respectively.
Asda’s CEO Andy Clarke said: “Average family spending power has continued to improve for the third consecutive month according to our Income Tracker.
“I take this as a positive sign that a macro economic recovery is underway although, as a note of caution, the effects have yet to be felt in real terms by all families across the UK. Some regions are beginning to see the benefits of a stronger job market coupled with lower inflation.
“But there are still pockets of the country where this hasn’t filtered through.
“We’re on the right track with slow but steady economic stabilisation, however until everyone feels this equally we’re not out of the woods.”
Rob Harbron, senior economist at Cebr which compiles the data, said: “The positive effects of economic recovery are now starting to feed through to household finances.
“Once wage growth starts to pick up, a further strengthening of growth on the Income Tracker is likely.
“However, a risk on the horizon comes from interest rates, as the unemployment rate is now very close to the point at which the Bank of England stated they will start to consider raising the bank rate.”