Poorest lag behind as average family gains a tenner a week

Families' spending power is typically £10-a-week stronger than a year ago - but while the highest-earning households have seen significant improvements those on low incomes are still struggling to find any spare cash, a report has found.

The average disposable income for UK households reached £202 a week in July, marking a £10 increase on a year earlier, according to Asda's Income Tracker.

While the richest 20% of households have seen their spending power increase by £27 per week compared with a year ago, the poorest 20% of households have seen no increase compared with July 2015, the report, compiled by the Centre for Economics and Business Research (Cebr), found.

It said the average household of the top 20% of earners had a gross income of just under £1,890 a week in July 2016. This is more than 10 times the average of those in the bottom 20%, who earn less than £180 a week.

The gross income of the highest earning households has grown by 2.3% since July 2015, compared with a 0.3% increase for the poorest fifth of households, the report said.

A household's spending power is the amount of cash left over for discretionary spending after essentials such as food, clothing, transport costs, healthcare and housing costs.

Despite the general increase in spending power, the rise of just over 5% over the past year is the weakest rate of growth seen since October 2014.

The richest fifth of households typically have £684 of weekly disposable income left after essentials have been taken into account, while the spending power of the poorest fifth of households is in negative territory. They have a £20-a-week shortfall in the amount needed just to cover essentials, researchers said.

The main pressure on household incomes in July came from rising costs of essential items, the report said.

Transport costs, such as fuel, provided one of the main sources of upward pressure. Alcohol prices also rose 0.5% between June and July compared with a fall of 2.5% at the same point a year ago. And prices in restaurants and hotels now stand 2.7% higher than a year ago.

Falls in the value of the pound following the vote to leave the EU could lead to higher import prices over the coming months, which is likely to have a knock-on effect on inflation levels as 2017 approaches, the report warned.

A separate Bank of England report showed that the growth in borrowing on personal loans and overdrafts by consumers weakened in July. Experts said this could be a significant sign that consumers may be looking to cut back their borrowing amid increased uncertainties following the Brexit vote.

Sam Alderson, an economist at Cebr, said: "The continued improvements in household finances have helped families shrug off much of the post-Brexit concern that has plagued businesses and financial markets. However, the outlook may not be so bright as rising inflation through into 2017 could place significant pressure on household budgets."