UK households had £160 a week to spend on extras last month, which was the highest level since July 2012 and an indication that families will have more financial stability in 2014, according to new research by Asda.
The Leeds-based supermarket’s latest Income Tracker report showed that family spending power, or discretionary income, increased by £2 a week year-on-year in November.
Asda said the increase came just in time for Christmas and was driven by a sharp fall in inflation on essential items and the lowest unemployment rate in four and a half years.
Asda president and chief executive Andy Clarke said: “As Christmas approaches it’s encouraging to see an increase in disposable income for UK households, which is hopefully an indication towards more financial stability for families in 2014.
“There is no doubt that it’s been a difficult 12 months, but with inflation and unemployment rates continuing to fall, the good news for the new year is that household finances could finally start to improve alongside the already heralded recovery of the macro economy.”
Essential item inflation fell from 2.8 per cent over the year to September 2013 to 2.1 per cent in October and further down to 2.0 per cent in November.
This is the lowest rate since February 2010.
The cost of fuel continued to fall in November and is now down 3.6 per cent year-on-year, while food price inflation also slowed to 2.8 per cent last month, down from 3.9 per cent in October.
According to the report, which will be released today, falling unemployment was also a big factor in the improving fortunes of families in the UK.
The number of people out of work fell by 99,000 to 2.39m in the three months to October, pushing the jobless rate down to 7.4 per cent, the lowest rate since April 2009.
Despite the headline good news, Asda said the report also illustrates how families are yet to feel the full benefits of economic recovery, as pay growth remains weak despite falling unemployment.
Average pay was up year on year by just 0.8 per cent in the three months to October, the slowest rise since the Office for National Statistics began collecting comparable figures in 2001.
The report said that the one per cent cap on growth in working age benefits is also constraining household income increases.
Mr Clarke said that while the positive signs are reassuring, regional differences continue to hamper celebrations of a more speedy and well-rounded recovery.
He said improvements are far less evident outside of London and the South East as the rest of the country continues to lag behind the capital and its surrounding area.
The report showed that year-on-year increases in the cost of gas and electricity squeezed household budgets last month and were up 6.7 per cent and 6.3 per cent respectively.
Asda said that the recently announced price hikes by the big six energy companies will hit family finances over the coming months.
According to Citizens’ Advice, some energy prices are rising eight times higher than increases in average earnings.
Asda said that energy will continue to remain a constant source of pressure on households in the New Year.
Rob Harbron, senior economist at Cebr, which carried out the research, said: “It is encouraging to see household finances starting to strengthen once more, as the UK labour market continues to strengthen and inflation has reached a four year low.
“However, sluggish wage growth continues to hold back household spending power. Faster earnings increases will be needed before we start to see sustained, significant growth in discretionary incomes.”
Over the last 12 months, Asda’s income tracker has seen discretionary income fluctuate vastly month-to-month, rising from £154 in March to its current peak of £160, which is a difference of £24 a month.
Looking back over the year the big changes include the sharp fall in essential item inflation, which was down from three per cent in March to the current rate of two per cent.
There were also sharp reductions in food price inflation, which fell from a peak of 4.6 per cent in April to 2.8 per cent in November.
Sharp falls in inflation on mortgages slowed from their peak of 4.6 per cent in April to 1.3 per cent last month
Unemployment in the UK fell from a high of 7.8 per cent in March to 7.4 per cent in the three months to November.