Disposable incomes dropped for 60% of UK households in July, representing the first decline for middle-income families since September 2023, according to Asda’s latest income tracker.

The decrease follows a sharp rise in inflation – which hit 3.8% last month – marking the highest level so far this year.

The cost of essentials, including food, drink and transport, was also up 5.1% year-on-year, the supermarket’s tracker found.

Middle-income households, comprising those with approximately £41,000 in gross annual earnings, saw disposable income decline by 1.6% in July, marking the first drop in almost two years.

Lower-income households experienced an 11.1% drop in spending power, leading to a shortfall of £73 per month between earnings and essential spending.

Although higher-income households remained more insulated, with income growth still outpacing rising costs, the tracker highlighted that the gap was narrowing.

It also noted that all households were likely to feel the squeeze in the months ahead, as earnings growth begins to ease and tax contributions rise, with inflation expected to stay above the Bank of England’s 2% target well into 2026.

Cebr head of forecasting and thought leadership Sam Miley said: “Inflation accelerated to 3.8% in July, the highest rate since January last year. The rise was driven primarily by sharp price increases in essentials, such as food and non-alcoholic beverages.

“This has been reflected in the income tracker, which showed only modest growth of 2.4% in the year to July.”

He continued: “While wages are expected to rise over the remainder of the year, persistently high inflation will put continued pressure on purchasing power, weighing on further gains in the tracker.”

The figures come as food inflation hit an 18-month high in August, fuelled by price hikes across butter, chocolate and eggs.

It reached 4.2% over the month compared to 4% in July, according to the British Retail Consortium (BRC)-NIQ Shop Price Monitor, the highest rate since February 2024.

However, last week it was reported that UK consumer confidence hit its highest level this year in August, according to GfK’s consumer confidence index.

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