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The discretionary spending power of households across all parts of Britain has increased for the first time in two years.
Wage growth and easing inflation left families with more money to spend on treats in the final quarter of 2023, according to the latest Asda Income Tracker.
After paying bills and essentials, the average UK household had a disposable income of £224 per week in the fourth quarter, the highest since the start of 2022.
The tracker, independently compiled by the Centre for Economics and Business Research, found that London continued to have the strongest disposable income, with the average household in the capital seeing an increase of 10.1 per cent to £301 per week across the quarter. Wales recorded the weakest increase in disposable income, at 4.6 per cent to £178, mainly because of weak earnings growth.
Despite the overall improvements, disposable income is down from before the pandemic. Compared with the peak of £246 in the first quarter of 2021, UK-wide discretionary income has fallen by 9.1 per cent.
However, a leading forecaster has predicted that household income is likely to improve further this year as interest rate cuts are expected to lead to a fall in borrowing costs.
The EY Item Club, which is closely followed because it uses the Treasury’s model of the economy, said the inflation rate was expected to average about 2.4 per cent this year, lower than the 2.8 per cent it previously predicted in its autumn forecast.
The positive forecast for inflation is anticipated to lead to a “significant” reduction in the bank rate for 2024. It is now predicting rates to fall from 5.25 per cent currently to 4 per cent over the year ahead, with the first cut coming as soon as May.
The EY Item Club said the year ahead was set to see a “turning point” for Britain’s stagnating economy thanks to falling inflation, interest rate cuts and tax reductions. It has upgraded its outlook for UK growth in 2024, to 0.9 per cent from the 0.7 per cent it previously pencilled in last October.
Growth is expected to step up again in 2025, with an expected increase in gross domestic product of 1.8 per cent compared with the 1.7 per cent previously predicted.