Households in the UK are prioritising saving over spending despite disposable income levels reaching the highs seen prior to the cost of living crisis.
Figures from Asda’s Income Tracker show that while disposable income for the average household increased 14% during Q2, consumption was down by 0.3% during the same timeframe. This suggests that households are using spare cash to top up the savings depleted during the cost of living crisis. The uptick in savings comes as disposable income grew to £245 per week in July, the highest figure since March 2021.
Whilst all age groups are expected to witness further improvements in spending power as result of income growth continuing to outpace inflation, some groups are more insulated from volatility than others.
Households above 65 recorded the strongest disposable growth in July, and their disposable income now sits above the UK average. Unlike working-age households, older households are less likely to be exposed to the impact the volatile job market has on disposable income and benefit from their state pensions being locked.
Sam Miley, Managing Economist and Forecasting Lead at Cebr, the firm that compiles the data, said: “While household spending power has continued to grow, consumption has reduced within the same timeframe. This reflects the trend of households spending less and instead diverting more of their disposable income towards savings. Earnings growth continues to outpace inflation, so further improvements in discretionary income are expected across all age groups and other demographics.”
NAM Implications:
- Surprise, surprise!
- Consumers are measuring inflation via ‘the pound in their pocket’ and perception…
- …rather than ‘official figures’.
- They ‘know’ they have lost 20%+ of their discretionary spending power since Lockdown…
- …and it will take some time to convince them of any improvement.
- And even longer to accept the shelf prices.
- Best we budget on that version of reality…
