Asda figures show that UK households had less to spend after essential bills in May, the fifth month in a row that customers have been watching the pennies.
The struggle was worse for low-income households, with their discretionary income falling to its lowest level since June 2024. These households were left with a shortfall of £74 between what they earn and what they spend on bills and essentials, meaning either dipping into savings or going into debt.
The lowest-earning 40% of households still have less spending power than they did in 2021, when the cost-of-living crisis began.
While annual inflation, as measured by the Consumer Prices Index (CPI), eased slightly from 3.5% in April to 3.4% in May, underlying financial pressures remain for these households.
Overall, the Asda Income Tracker - which measures how much customers have to spend after taxes and essential spending - said the pounds in pockets went up by £9.19 per week compared to May 2024 – an annual increase of 3.8%.
That means that while the amount customers have to spend is slightly more than this time last year, it's still less than it was in April (4.5%) and showing a downward trend this year.
What is making shoppers feel poorer?
Rising costs for household essentials, partly driven by increases in employer National Insurance contributions and the National Living Wage, have offset any potential relief from wage rises.
Looking ahead, inflation is expected to remain above the Bank of England’s 2% target, fuelled by high energy prices. At the same time, a softening labour market is likely to slow income growth, particularly for lower-income groups.
In stark contrast, higher-income households - which make up 40% of UK households - appear largely insulated from these challenges, with their spending power continuing to improve. These households now enjoy more discretionary income than they did before the crisis, driven by their gross income growth continuing to outpace deductions.
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The highest earning households recorded the largest monthly increase, with discretionary income rising by £4.80 to £902 per week - highlighting the sharp contrast with the financial pressures faced by the lowest-income households.
Sam Miley, Head of Forecasting and Thought Leadership at Cebr, says: “There were marginal improvements in the Income Tracker in May, but households remain worse off than earlier in the year. Their spending power is being eaten up by elevated energy bills and rising food price inflation. These effects are particularly stark amongst low earners.
“Looking ahead, inflation is expected to remain elevated for some time, presenting a continued risk to the spending power outlook. Nevertheless, continually robust earnings growth will continue to support households.”
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