A fifth of UK households now have an average shortfall of £60 a week between what they earn and what they need to cover basic needs such as energy bills, rent, transport and food, as the rising cost of living leaves people with the lowest amount of excess cash in nearly five years.
The soaring cost of living, up 11% year on year in June, led to a record 18% drop in average household disposable income of £175.80 a month, according to data from the Asda Income Tracker compiled by the Center for Business and Economic Research (Cber).
The average household had £200 a week after paying taxes and essential bills last month – a figure that has fallen for eight consecutive months to a level not seen since December 2017.
Those on the lowest incomes have been hit the hardest as the £20 Universal Credit boost during the pandemic was withdrawn in October and inflation has raised the price of basic necessities, reducing the power of ‘purchase.
Those in the North East of England and Northern Ireland were the worst off, as these regions were hit the hardest by changes to benefits. Londoners did better than the rest of the country in the first three months of the year, but then saw their free cash flow fall.
The cash squeeze is leading people to cut non-essential expenses such as subscriptions and gambling, as well as debt payments and broadband costs, according to figures from Nationwide.
The building society’s customers reduced their overall spending on credit and debit cards and through direct debits by 4% in June compared to May. This is explained by a monthly decrease of 6% and 3% respectively in non-essential and essential expenses.
Electric vehicle fuel and charging expenses were the only critical category in which there was a month-over-month increase.
Almost all non-essential categories were down month over month in June. The biggest cuts between May and June were to gardening, air travel, gambling and subscriptions such as Netflix.
However, holiday spending, including air travel and cruises, leisure activities, restaurants, digital goods and clothing, surged well in June last year as people sought to take advantage of the end of the Covid restrictions. Popular hobbies during the pandemic shutdowns, including gardening, DIY, subscriptions and digital dating, have all been put on the back burner.
Mark Nalder, Head of Payments at Nationwide Building Society, said: “Following a spike in spending in May, our data suggests that households have started to cut at all levels and where they can. This is happening as we enter the summer period where customers will want to have fun, so it will be interesting to see how these often conflicting interests are balanced.
“As we head into the holiday season, we expect budgeting to continue to be a feature as the country prepares for even higher costs, inflation continuing to climb and the price cap energy increasing again this fall.”