Blog: UK consumer spending power continues descent

Katy Askew | 24 April 2012

The latest Asda Income Tracker certainly made for some depressing reading today (24 April), revealing that the average UK family has continued to see its disposable income drop - down 6.5% on the year. 

According to the supermarket group, family spending power fell by GBP10 (US$16.13) a week in March, leaving the average UK family with GBP144 of weekly disposable income after bills and taxes. This, the AIT said, is the lowest level since November 2008. 

Commenting on the findings, Asda CEO Andy Clarke said it is "worrying" that this drop comes at a time when the cost of essentials is rising "increasing the demands on family budgets and putting pressure on income growth".

The consumer price index, the official barometer measuring the cost of living in the UK, was again up in March, rising 3.5%. This is well above average earnings growth, which is up just 1.6%. 

Meanwhile, the spectre of high unemployment levels is also taking its toll.

Charles Davis, macroeconomics chief at CEBR, said that even as the cost of essentials looks set to fall back, "tough conditions" in the labour market look set to prevail. 

"Average earnings growth is expected to trail inflation in 2012, keeping pressure on household incomes. As such we are likely to see continuing declines on the AIT over the coming months," he concluded. 

So, what does all this doom and gloom mean for the food industry? 

In a timely announcement today, the latest Kantar figures highlighted the 'bottleneck effect' that has seen sales gains at the top- and bottom-end of the market, at the expense of the middle-ground. 

The discounters - Aldi, Lidl and Iceland - are posting sales growth well ahead of the rest of the sector. Meanwhile, high-end retailer Waitrose appears to be attracting customers who are eating out less, but still looking for that taste of luxury. This trend is also witnessed by the growth of 'best' lines at mainstream supermarkets. 

However, if consumer confidence continues to be squeezed, we could well see the development of an even more price-conscious consumer as the definition of value focuses in on price and less emphasis is placed on quality. Whether this happens will largely depend on how deeply the country's middle-class consumers feel the squeeze in the coming months. 

We will be devoting some in-depth analysis to the issue later this week, so watch this space for more on the outlook for the country's discount retailers.