Asda Income Tracker Report: June 2016 Released: July 2016 M a k i n g B u s i n e s s S e n s e Centre for Economics and Business Research ltd Unit 1, 4 Bath Street, London EC1V 9DX t 020 7324 2850 w www.cebr.com Report: June 2016 Released: July 2016

Contents Asda Income Tracker Introduction 03 Headlines 04 Constructing the Income Tracker 05 Dashboard 06 Income Tracker trends 07 Cost of living 09 Labour market 11 Regional trends 12 Contact 16 Data charts & tables 17 Method notes 22 Disclaimer 24 2

Introduction Asda Income Tracker “With discretionary incomes continuing to rise families will be able to enjoy more than just the weather this month. Household finances are improving, the purse strings are loosening and we’re seeing people preferring to spend their hard-earned cash on activities for all the family to enjoy.” “What’s clear to me is that as family spending power shows no sign of abating and employment levels remain static, households can be confident in a bright summer ahead.” Update Andy Clarke Asda President and CEO 3

Family spending power was up by £12 a week year on year Headlines – Asda Income Tracker Headlines The average UK household had £201 a week of discretionary income in June 2016, up by £12 a week on the same month a year before. Once again, households across the UK have experienced broad growth in family spending power in June. Buoyed by continued falls in the cost of essential items, year-on-year growth ranged from £8 to £18 a week across the different regions of the UK in Q2 2016. However, the economic environment has noticeably shifted over the past month. This will likely feed into the outlook for household discretionary income growth over the coming year, with weaker exchange rates pushing up the cost of some essentials. Family spending power was up by £12 a week year on year in June (a 6.2% annual increase) “Whilst the latest data shows a slight slowing in spending power growth, we continue to see a picture of broad increases in discretionary incomes across the country.” “In the uncertain economic environment the UK now faces, the gains in spending power seen in recent years can not be understated. Whilst consumers have understandably lost some confidence in recent weeks, improved finances should provide some support in navigating the uncertain outlook.” Sam Alderson, Economist, Cebr 4

Constructing the Asda Income Tracker Model Total household income £751 per week e.g. national insurance contributions, income tax Net income £633 per week - = Taxes £118 per week e.g. wages, investment income, pensions, social security, self employment earnings i.e. take home pay e.g. food, clothing, housing costs, bills, transport, communication costs, health, children’s schooling, house maintenance and repair Average family spending power £201 per week Net income £633 per week - = Cost of living £432 per week i.e. take home pay e.g. holidays, cinema, theatre, eating out, toys, sports, savings, jewellery, national lottery and other gambling payments, computer software and games 5

Annual percentage change Asda Income Tracker Dashboard: June Dashboard Indicator Annual percentage change Recent trend Regular earnings growth (May) +2.2% (excl. bonuses) Employment growth (May) +2.0% (+624,000 employment on year) Unemployment rate (May) 4.9% (-0.7% points on year) Net income +2.2% Mortgage costs -1.9% Food & non-alcoholic drinks -2.9% Vehicle fuels -5.5% Home electricity, gas & fuel -3.4% Essential item inflation -0.1% Family spending power +6.2% KEY IMPROVING TREND NO SIGNIFICANT CHANGE IN TREND DETERIORATING TREND * three-month average, to month stated **unemployment rate for three months to month stated 6

Growth in spending power dips back below 7% in June Income Tracker Trends The Asda Income Tracker was £12 a week higher in June 2016 than a year before Year-on-year change in Asda income tracker, £ • Average household discretionary incomes excluding bonuses were 6.2% higher in June 2016 compared with the same period in 2015. This is a slight slowing when compared with the previous two months but remains marginally above the level seen in March 2016. • In pound terms, annual growth remains well into double digits, the 20th consecutive month of increases over the £10 a week level. • Whilst overall inflation rose, essential item inflation remained in negative territory helped by continued declines in the cost of groceries and mortgage payments. • Wage growth remains well above the level of inflation. However, despite improvements in employment growth in the latest reading and the introduction of the National Living Wage, wage growth remained relatively flat in the latest reading. 7

Slower net income growth provides slight drag on spending power Income Tracker Trends Slower net income growth provides slight drag on spending power Contributions to annual change in the Income Tracker (excluding bonuses), June 2016 The Asda Income Tracker was £12 a week higher in June 2016 than a year before • The average UK household had £201 a week of discretionary income in June 2016, up from £189 at the same point a year ago. • With the National Living Wage failing to support further increases in wage growth, the annual increase in household net income slipped to 2.2% in June compared with 2.4% in the previous reading. • The cost of essential spending also rose marginally compared with the previous month but essential item inflation remains in negative territory. • In contrast with the slight decline in regular pay growth, annual increases in total pay accelerated in June. However, growth in the headline tracker that excludes bonuses remained faster than when total pay is taken into account. 8

Inflation ticks up in June with further increases expected post Brexit Cost of living Essential item inflation remains negative Annual inflation on the consumer price index (CPI), and essential item annual inflation • Annual consumer price inflation rose to 0.5% in June, up from the 0.3% seen through much of the year to date. • Apart from a temporary uptick in March, the annual rate of CPI inflation hasn’t been this high since late 2014. Although this is the highest reading in some time, in historic terms inflation remains very low. • Similarly, despite the headline rate increasing in the latest reading, essential item inflation remained in negative territory in June. • Still, inflation, both headline and the essential item measure, looks likely to continue to rise in the coming months. • Recent declines in the value of the pound following the result of the referendum in June look set to place further upward pressure on prices as we move through the second half of the year. 9

Air fares and vehicle fuels place upward pressure on inflation Cost of living The main factors affecting family costs in June were: Inflation of selected goods, annual change to June 2016 • Transport costs once again provided one of the main sources of upward pressure. Within transport, the largest upward effect came from air fares, which rose by more than a year ago, with the main contribution coming from European routes. Additionally, petrol and diesel prices rose by 2.3 and 2.6 pence per litre respectively between May and June 2016. • Prices in the recreation and culture category also placed upward pressure on inflation in June. The upward contribution came principally from games, toys and hobbies (particularly computer games) with prices rising between May and June 2016. • Still, there were some positive price reductions for households in a number of key essentials. The cost of food and drink declined by 0.4% between May and June. Similarly, mortgage interest payments fell by 0.2% on the month. 10

Unemployment falls to lowest level in nearly 11-years Labour Market Wage growth slips despite boost from the National Living Wage UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent • The rate of unemployment across the UK fell once again in the latest reading. It now stands at just 4.9% for the three months to May, down from the 5.6% recorded during the same period a year ago and the lowest level since July 2005. • Similarly, the employment rate over the period remained at a record high of 74.4%. • However, despite further momentum in the UK labour market and the introduction of the National Living Wage at the beginning of April, regular pay growth dropped slightly to 2.2% in the three months to May. • A range of factors appear to be continuing to weigh on wage settlements such as lacklustre productivity growth, low inflation and even changes such as the move to auto-enrolment. Whilst the inflationary effect is likely to diminish in the coming months, any weakness in hiring following the Brexit decision would likely offset associated upward wage pressures. 4.9% 2.2% 11

Welsh households see fastest growth in gross incomes in Q2 2016 Regional Trends Pick-up in the North East lifts it off the bottom of the rankings Regional gross income, annual change to quarter indicated • There was a mixed picture for gross income growth across the regions between the first and second quarter of 2016. • For instance, the West Midlands, which had performed relatively well in the first three months of the year has seen growth slow following a rise in unemployment across the region. • In contrast, the North East, which sat at the bottom of the rankings in Q1, saw gross income growth pick-up strongly. Here the rate of unemployment has declined sharply over the three month period, helping to boost household income levels. • After preforming relatively strongly in the first quarter of the year, Wales topped the list in Q2 2016, supported by a slight drop in the rate of unemployment and relatively robust wage growth. 12

Wales and the North East enjoy greatest gains in Q2 2016 Regional Trends Double-digit increases in all but two regions Asda Income Trackers by region, annual % change to quarter indicated and annual £ change to latest quarter • With inflation generally steady through the second quarter of 2016, changes to the growth in household largely reflect shifts in regional labour markets. • A number of regions saw growth slow in the latest quarter, with the West Midlands seeing the sharpest fall in line with its rise in the rate of unemployment. • Still, growth in cash terms remained above £10 per week in 11 of the 13 regions. Overall, increases ranged from £8 per week in the Northern Ireland to £18 a week in the East of England. • The North East of England and Wales were the fastest-rising regions in terms of discretionary income growth. Closely followed by Northern Ireland. Each of these regions experienced a fall in the rate of unemployment compared with the previous quarter, boosting spending power. +£15 +£18 +£8 +£11 +£16 +£9 +£12 +£17 +£13 +£10 +£11 +£10 +£10 13

Discretionary incomes in Scotland hit £200 Regional Trends Discretionary incomes in Scotland hit £200 East of England closes the gap with London once again Average household discretionary income by region, £ per week in quarter indicated • With the North East experiencing a pick-up in spending power growth, Northern Ireland failed to make further progress towards the rest of the pack in the latest quarter. • In line with the UK as a whole, Scotland reached the £200 a week milestone for the first time over the course of Q2 2016. • While households in London once again experienced one of the slower rates of spending power growth compared with the UK as a whole, the average household discretionary income across the capital (£272) remains well-above other UK regions. • However, the strong growth seen in the East of England over the last year has seen the gap with London narrow on an annual basis for the third consecutive quarter. 14

Focus on Scotland and Northern Ireland Regional Trends Focus on Scotland and Northern Ireland Annual % change in discretionary incomes, Scotland Annual % change in discretionary incomes, Northern Ireland • After slowing for three consecutive quarters, growth in average discretionary incomes in Scotland rose in Q2 2016, reaching 5.1% year-on-year. • Still, Scotland remains at the bottom of the regions in terms of the rate of spending power growth. • The rate of unemployment across the country has improved in recent months but still remains above the level seen across the UK as a whole. • In addition, wage growth across the country remains more muted than in other parts of the UK. • Still, the latest growth in spending power has raised average household discretionary income to the £200 level highlighting that households in the country have a relatively high level of spending power. • Following falls in recent quarters, annual spending power growth rose in the second quarter of 2016. However, at 8.7%, growth remains well below the rate seen at the same time a year earlier. • In pound terms, households across Northern Ireland experienced the smallest increase in discretionary income in the latest quarter. • In line with the UK as a whole, the cost of essential spending has continued to fall back on a year-on-year basis across Northern Ireland. • Additionally, whilst still weak, the country’s labour market has seen a slight drop in the rate of unemployment in recent months providing a small boost to households. 15

Data and Method Appendix Please find attached method notes and the tabulated date. Asda produces a monthly income tracker report with a more comprehensive report every quarter. For press enquiries please contact: Jennifer Devlin, Asda Media Relations Manager, Jennifer.Devlin@Asda.co.uk ; 0113 826 4823 For data enquiries please contact: Sam Alderson, Cebr Economist, SAlderson@Cebr.com ; 020 7324 2874 16

Monthly Asda Income Tracker Asda Income Tracker tables Figure 1: Asda Income Tracker and year-on-year change (excluding bonuses) Asda Income Tracker (LHS) Asda Income Tracker annual % change (RHS) 17

Monthly Asda Income Tracker Asda Income Tracker tables Figure 2: Comparison of year-on-year change in Asda Income Tracker including and excluding bonuses 18

Monthly Asda Income Tracker Asda Income Tracker tables Figure 3: Twelve-month moving average of Income Tracker (excl. bonuses) level 19

Monthly Asda Income Tracker Asda Income Tracker tables Table 1: Average UK household Income Tracker, £ per week, current prices, excluding bonuses Month Income tracker Month Income tracker Month Income tracker Month Income tracker Month Income tracker January 2012 £164 January 2013 £166 January 2014 £170 January 2015 £185 January 2016 £197 February 2012 £163 February 2013 February 2014 £169 February 2015 February 2016 £198 March 2012 March 2013 £162 March 2014 £168 March 2015 £186 March 2016 April 2012 £165 April 2013 £167 April 2014 April 2015 £188 April 2016 £201 May 2012 May 2013 May 2014 £171 May 2015 May 2016 June 2012 June 2013 June 2014 June 2015 £189 June 2016 July 2012 July 2013 July 2014 £173 July 2015 £191 August 2012 August 2013 August 2014 August 2015 September 2012 September 2013 September 2014 £174 September 2015 £192 October 2012 October 2013 October 2014 £176 October 2015 £193 November 2012 November 2013 November 2014 £179 November 2015 December 2012 December 2013 December 2014 £181 December 2015 2012 Average 2013 Average 2014 Average 2015 Average £190 20

Quarterly ASDA Income Tracker Asda Income Tracker tables Table 2: Average household Income Tracker, £ per week, current prices, excluding bonuses Region Q2 2014 Q2 2015 Q2 2016 Northern Ireland 80 95 103 North East 108 122 133 West Midlands 145 164 173 Yorkshire & Humber 149 166 177 Wales 151 165 180 East Midlands 153 170 North West 150 168 South West 183 Scotland 190 200 South East 182 216 East 191 210 228 London 231 255 272 21

Method notes Total household income minus taxes equals net income The Asda income tracker is calculated from the following equations: Total household income minus taxes equals net income Net income minus basic spend equals Asda income tracker Total household income for the United Kingdom is derived from the Living Costs and Food Survey 2012 (released December 2013). This is updated on a monthly basis using official statistics on average earnings, unemployment, social security payments, interest rates and pension income. Earnings data from the Office for National Statistics that is released in the month of the report refers to the previous month. We forecast earnings data for the month of the report. Taxes are subtracted from total household income to estimate the actual amount that can be spent on goods and services, i.e. net income or disposable income. The average amount of tax paid is calculated using the latest version of the Living Costs and Food Survey. This is updated on a monthly basis using Office for National Statistics data and Cebr modelling. 22

Method notes Method notes These components are based on official statistics and Cebr calculations. Net income is calculated by deducting our tax estimate from our total household income estimate. Basic spend (cost of living) figures are updated using monthly consumer price data and the trend growth rate in the volume of essential goods and services purchased over the most recent ten year period. A full list of items constituting basic (or ‘essential’) spending was created in collaboration between Asda and Cebr when the income tracker concept was originally formed in 2008. This list is available on request. The Asda income tracker is a measure of ‘discretionary income’, reflecting the amount remaining after the average UK household has had taxes subtracted from their income and bought essential items such as: groceries, electricity, gas, transport costs and mortgage interest payments or rent. The income tracker measures the amount left over to spend on discretionary purchases such as leisure and recreation goods and services. 23

Disclaimer Disclaimer This report was produced by the Centre for Economics and Business Research (Cebr), an independent economics and business research consultancy established in 1993 providing forecasts and advice to City institutions, government departments, local authorities and numerous blue-chip companies throughout Europe. The main contributors to this report are Cebr economists Sam Alderson and Scott Corfe. Whilst every effort has been made to ensure the accuracy of the material in this report, the authors and Cebr will not be liable for any loss or damages incurred through the use of this report. London, July 2016 24