Blog: Petah MarianClouds over UK consumer market continue to darken

Petah Marian | 27 January 2011

The clouds hanging over the UK consumer market continue to get darker, as Asda's income tracker today claimed to show the largest decline in family spending power since the data was first published in 2007.

According to the retailer's research, family spending power, which it defines as the amount remaining after taxes and basic items, was down by GBP8 (US$12.73) a week and represents the 12th month of consecutive decline.

The retailer said that the average UK household had GBP172 a week of discretionary income in December 2010, a 4.5% drop on the same period last year.

The main driver of the downward trend, Asda said, is the disparity between consumer price inflation and sluggish earnings growth. Gross incomes were up 2.3% in December against the previous year, while the cost of essential goods and services was 3.9% higher in in December 2010.

It said that the main factors putting downward pressure on family spending power in December was the transport sector, which was "by far the largest contributor to the headline rate of inflation in December with 6.5% annual growth".   According to the AA, the cost of unleaded petrol rose by 12.7% in December 2010 year on year, up from 9.6% in November. 

Additionally, the improvements in the labour market earlier in 2010 were reversed when unemployment rose to 7.9% over the three months to November, against 7.7% in the previous quarter, as the economy contracted by 0.5% in the final quarter of 2010.

RBS analyst Justin Scarborough echoed the results' sentiment, despite questioning some of its research methods. He argued that food prices are not up by 6.1% "as per the CPI data, but maybe 1-2%", adding that with high levels of promotion, "UK consumers are still being helped by the food retailers in terms of dialling out price increases".

However, he said: "With austerity measures ahead and with inflation remaining fairly high, things are likely to get worse in the short-term before they get better (hopefully!)."

Sadly, it seems that there are no clear skies on the horizon just yet.



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