The amount of spending a family has for non-essential items experienced the largest fall since records began last month, according to new research.
Average UK family spending power reduced by £9 in January to £174 per week, once bills and the cost of basic items are subtracted, which represents a 4.7 per cent drop from this time last year.
Rising costs in essential goods and services have been blamed for the declining fortunes of the country’s households, revealed by supermarket Asda’s latest monthly Income Tracker.
Charles Davis, Managing Economist for the Centre for Economics and Business Research, which helps compile the data for Asda, said: “With annual consumer price index inflation double the Bank of England’s target rate, while earnings growth remains modest, average households are seeing spending power sharply eroded.
“This trend is likely to continue into 2011, as inflation remains elevated and the labour market recovery lacks conviction.”
VAT rose from 17.5 per cent to 20 per cent during the month and global commodity prices continued to push food inflation up, with the British Retail Consortium estimating that it increased by 0.6 per cent to 4.6 per cent year-on-year.
Today’s report highlighted how the current disruption in the Middle East has pushed up petrol prices limiting family funds further, and with the VAT cost likely to be passed on to the consumer further in the next month or so, spending is going to remain squeezed.