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 cash in nearly five years.
Rising living costs, up 11% year-on-year in June, led to a record 18% drop in disposable household income from £175.80 a month, according to Asda Income Tracker data compiled by the Center of Economic and Business Research (Cber). ).
The average household was left with £200 a week after paying tax and essential bills last month, a figure which 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Those on the lowest incomes were hardest hit as the £20 rise in universal credit during the pandemic was withdrawn in October and inflation pushed up the price of essentials, squeezing purchasing power.
Those in the North East of England and Northern Ireland fared worse as these regions were hit hardest by the benefit changes. Londoners fared better than the rest of the country in the first three months of the year, but then saw a decline in cash left over.
According to figures from Nationwide, the cash squeeze is leading people to cut back on non-essentials such as subscriptions and gambling, as well as debt payments and broadband costs.
Building society customers reduced overall spending on credit, debit and direct debit cards by 4% in June compared to May. This was driven by a 6% and 3% monthly decline in non-essential and essential spending, respectively.
Spending on electric vehicle fuel and recharging was the only essential category to see a month-on-month increase.
Almost all non-essential categories declined month-on-month in June. The biggest cuts between May and June were in gardening, air travel, gambling and subscriptions like Netflix.
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However, spending on holidays, including air and cruise travel, leisure activities, food, digital goods and clothing rose sharply in June last year as people tried to enjoy the end of restrictions on covid Popular pastimes during pandemic lockdowns, such as gardening, DIY, subscriptions and digital dating, took a back seat.
Mark Nalder, head of payments at Nationwide Building Society, said: “After a peak in spending in May, our data suggests that households have started to cut back at all levels and where they can. This comes as we enter the summer period where customers will want to indulge, so it will be interesting to see how these often conflicting interests are balanced.
“As we head into the holiday season, we expect the budget to remain a feature as the nation prepares for even higher costs with inflation continuing to rise and the energy price cap returning to increase this fall.”