A fifth of UK households now have an average shortfall of £60 a week between what they earn and what they need to cover essentials such as energy bills, rent, transport and food, as the rising cost of living leaves people with the lowest amount of spare cash in almost five years.
Soaring living costs, 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 collated by the Centre for Business and Economic Research (Cber).
The average household had £200 a week left after paying tax 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Those on the lowest incomes were hardest hit as the £20 boost to universal credit during the pandemic was withdrawn in October and inflation raised the price of essentials, squeezing spending power.
Those in north-east England and Northern Ireland fared worst, as these regions were most affected by the benefit changes. Londoners did better than the rest of the country during the first three months of the year, but then saw a decline in spare cash.
The squeeze on cash is leading people to cut back on non-essentials such as subscriptions and gambling as well as debt payments and broadband costs, according to figures from Nationwide.
The building society’s clients cut overall spending on credit and debit cards and via direct debits by 4% in June compared with May. This was driven by a monthly decrease of 6% and 3% in non-essential and essential spending respectively.
Spending on fuel and electric vehicle charging was the only essential category in which there was a month-on-month rise.
Nearly every non-essential category decreased month on month in June. The biggest cuts between May and June were on gardening, airline travel, gambling and subscriptions such as Netflix.
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However, spending on holidays, including airline travel and cruises, leisure activities, dining out, digital goods and clothing was well up on June last year as people sought to enjoy the end of Covid restrictions. Pastimes popular during pandemic lockdowns, including gardening, DIY, subscriptions and digital dating were all put on the back burner.
Mark Nalder, head of payments at Nationwide building society, said: “Following a peak in spending during May, our data suggests households have started to cut back across the board and where they can. This is happening as we enter the summer period where customers will want to enjoy themselves, 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 being a feature as the nation prepares for even higher costs with inflation continuing to climb and the energy price cap rising again this autumn.”