Discretionary UK household income rose by £2 to £158 a week in December 2013 compared to the same month last year, according to Asda‘s latest income tracker.

The cost of essential items such as groceries, electricity, gas and transport costs rose by 2 per cent year-on-year (YOY) in December, which represents a 3 per cent fall from last June‘s figure. The report comes as the government claimed that workers pay had risen 2.5 per cent after tax cuts had been taken into account.

The monthly tracker, which calculates total household income using ONS data, found that the sharpest increase in household spending power came in the Midlands (3.6 per cent) – the equivalent of a £5 YOY rise to £140.

London‘s discretionary income was the highest of all areas at £235 in the fourth quarter in 2013 and was 47.7 per cent above the national average. The East (£185), South-East (£169) and Scotland (£163) were all above the UK average, while Northern Island (£57), Yorkshire and Humber (£127) and the North-East (£129) were lower.

Headline inflation rate stood at or below the Bank of England‘s 2 per cent target for the first time in 49 months.

However, Asda President and CEO, Andy Clarke remained cautious of economic prospects. “The effects have yet to be felt in real terms by all families across the UK… there are still pockets of the country where this hasn‘t filtered through,” he said.

Rob Harbron, Senior Economist, Cebr, said the positive effects of economic recovery are now starting to feed through to household finances, as shown by the past three months of annual growth in discretionary incomes.

“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,” he warned.

Cebr recently predicted that Britain, which is currently sixth in the world league table, will be Europe‘s most prosperous economy by 2030.