1. Asda Income Tracker Report: September 2016 Released: October 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 w
Report: September 2016
Released: October 2016

2. Contents
Asda Income Tracker
Introduction Headlines Constructing the Income Tracker 05 Dashboard Income Tracker trends Cost of living Labour market
Contact Data charts & tables Method notes
Disclaimer 2

3. Introduction
Asda Income Tracker
“As a retailer, it’s encouraging to see that UK families were able to benefit from a decline in food prices during September, especially as inflation and a weakened pound raised the cost of other essentials items.”
“Consumers are still £9 better off than the same period last year, however the drop into single digit spending power growth for the first time in almost two years will cause some concerns for consumers, so we will be watching the trends carefully over the coming months.”
Asda spokesperson 3

4. Family spending power was up by £9 a week year on year
Headlines – Asda Income Tracker
Headlines
The average UK household had £201 a week of discretionary income in September 2016, up by £9 a week on the same month a year before.
Growth in spending power has slowed considerably this month, leading to the first increase in spending power below £10 in almost two years.
While the labour market has remained resilient after Brexit so far, the weak pound is starting to push up the inflation rates. In September households faced higher prices at the pump and also when shopping for clothes or dining out. Inflation is expected to rise further over the coming months, meaning that households will have less discretionary income available. The downward trend for the income tracker is set to continue.
Family spending power was up by £9 a week year on year
in September
(a 4.7% annual increase)
“Household incomes continue to increase, but rising inflation is starting to take its toll on spending power. The weak pound means that price growth is going to accelerate further in the next months, increasing the cost of the weekly shopping.”
“In September, for the first time in nearly two years, households’ weekly spending power has risen by less than £10. After a long period of unusually low inflation, we can expect to see price increases for many essential items over the next months. For 2017, decreases in spending power cannot be ruled out.”
Kay Daniel Neufeld, Economist, Cebr 4

5. Constructing the Asda Income Tracker
Model
Total household
income
£754 per week
e.g. national insurance contributions, income tax
Net income
£635 per week - =
Taxes
£119 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
£635 per week - =
Cost of living
£434 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

6. Annual percentage change
Asda Income Tracker Dashboard: September
Dashboard
Indicator
Annual percentage change
Recent trend
Regular earnings growth (Aug)
+2.3% (excl. bonuses)
Employment growth (Aug)
+1.8% (+560,000 employment on year)
Unemployment rate (Aug)
4.9% (-0.5% points on year)
Net income
+2.1%
Mortgage costs
-2.7%
Food & non-alcoholic drinks
-2.3%
Vehicle fuels
1.4%
Home electricity, gas & fuel
-2.0%
Essential item inflation
+0.4%
Family spending power
+4.7%
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

7. Spending power increases notably slower in September
Income Tracker Trends
The Asda Income Tracker was £9 a week higher in September 2016 than a year before
Year-on-year change in Asda income tracker, £
• Average household discretionary incomes excluding bonuses were 4.7% higher in September 2016 compared with the same period in 2015.
• For the first time in two years, spending power has risen by less than 5%.
• This is also mirrored when looking at the increase in spending power in pound terms. After 22 months of double digit growth, households’ weekly discretionary income has risen by less than £10 for the first time this month.
• Wage growth still remains above the rate of inflation. But as price growth accelerated to 1% in August, the pace of inflation might soon surpass wage growth, leading to declines in real incomes. 7

8. Essential item inflation rises well above 0% in September
Income Tracker Trends
Essential item inflation rises well above 0% in September
Contributions to annual change in the Income Tracker (excluding bonuses), September 2016
The Asda Income Tracker was £9 a week higher in September 2016 than a year before
• The average UK household had £201 a week of discretionary income in September 2016, up from £192 at the same point a year ago.
• Despite the introduction of the National Living Wage and continuous low unemployment rates wage growth remains stuck at 2.3%.
• Essential item inflation stood at around 0% for the previous two months and was even negative for most of 2016 and In September price growth returned into positive territory at 0.4%.
• Inflation is expected to accelerate further over the coming months as the weak pound makes imports more expensive. This will further drive up prices for essential items such as fuel, food and clothes. 8

9. Inflation rises to a 22 month high in September
Cost of living
Food prices continue to decline
Annual inflation on the consumer price index (CPI), and essential item annual inflation
• Annual consumer price inflation rose to 1.0% in September, its highest level since November 2014.
• Rising prices for hotels, motor fuels and clothing provided upward pressure in September. Prices for food and air fares declined, although not enough to offset price increases in other categories.
• In line with headline inflation, prices for essential items rose by 0.4%. For the first time in two years essential item inflation stood well above 0%. After four months of negative inflation, clothes in September were dearer than during the same month a year earlier. Also the costs for transportation, alcohol and tobacco products and education added to the increase in essential item inflation.
• Much of the basic items such as food and clothes are imported for abroad. Given the weak position of the pound in currency markets, inflation is therefore expected to rise further for the rest of the year as well as for 2017. 9

10. Cheaper gas and electricity fail to offset rising costs for clothes and fuel
Cost of living
The main factors affecting family costs in September were:
Inflation of selected goods, annual change to September 2016
• The prices for hotel stays and restaurant visits were one of the main contributors for higher inflation this month. Prices rose by 0.7% in September compared to 0.2% in the same month last year.
• Clothing and footwear also pushed up inflation in September. Prices rose by 5.2% compared to the previous month.
• Prices for gas fell by 4.6% compared to September 2015, offsetting some of the inflationary pressures this month.
• The cost of food and drink also weighed on inflation in September, with prices falling 0.1% in the month. Annual price deflation stood at -2.3%. 10

11. Unemployment holds steady in the months after Brexit
Labour Market
Unemployment remained unchanged at 4.9% for the fourth month in a row
UK unemployment rate (LHS), per cent and 3-month annual growth in regular pay (RHS), per cent
• The UK labour market has proven resilient in the months after the EU referendum. Unemployment has been low throughout the year and remains unchanged at 4.9% in the three months to August.
• Similarly, the employment rate, i.e. the share of people aged 16 to 64 in employment, remained at a record high of 74.5%.
• Wage growth has been largely flat throughout 2016 and September is no different. Regular pay growth accelerated slightly to 2.3% compared with 2.1% in the month before. Wages have therefore not yet suffered any measurable effect from Brexit. However, the figures are still a somewhat disappointing considering the low rate of unemployment.
• Weak pay growth will be one of the reasons why family spending power is at risk in If inflation continues to rise as quickly as in the last months it will soon outstrip wage growth, leaving consumers with less of their income in their pockets.
4.9%
2.3% 11

12. Households in the North East see fastest growth in gross incomes in Q3 2016
Regional Trends
North East and Wales lead the table in Q3
Regional gross income, annual change to quarter indicated
• Gross income growth across the regions showed a mixed picture between the second and third quarter of 2016.
• The North East saw gross income grow by 3.2% in the third quarter, surpassing Wales as the region with the highest growth rate. Scotland is the only other region to increase gross income growth in Q3. Whilst all other regions saw slower growth from July to September, Northern Ireland’s growth rate remained unchanged.
• The East of England recorded the biggest slowdown compared to the second quarter: gross income grew 2.1% in Q3 compared with 2.8% in the previous 3-month period.
• But also the South West and the North West saw gross income growth rates decline between the two quarters, in part caused by an increase in unemployment. 12

13. Wales, the North East and Scotland with highest annual gains in £ terms
Regional Trends
Increases notably smaller than in previous quarters
Asda Income Trackers by region, annual % change to quarter indicated and annual £ change to latest quarter
• The effects of rising inflation can be seen across all regions. Only in the North East and in Scotland has the income tracker posted faster growth in Q3 than in Q2.
• Higher inflation in the wake of the EU referendum has pushed annual gains in spending power below the £10 threshold in five out of the 12 regions. As we expect this trend to continue, Q3 is probably the last quarter with double-digit gains in pound terms across the whole of the UK.
• Though rising costs of living are the main contributor to the slower increase in spending power, the situation is exacerbated by increases in unemployment in some regions such as in the South West and in the West Midlands.
+£14
+£8
+£14
+£14
+£13
+£12
+£9
+£8
+£12
+£10
+£7
+£8
+£6 13

14. Wales moves up four places since last year
Regional Trends
Wales moves up four places since last year
Discretionary income in Scotland surpasses UK average
Average household discretionary income by region,
£ per week in quarter indicated
• Wales moved up four places in the ranking as it made significant gains in household discretionary income over the last four quarters.
• Despite the fast growth rates in gross income, discretionary spending power in the North East is still the second lowest as the gap to the West Midlands remains substantial.
• Due to the high discretionary income in London, the UK average is highly skewed. Still, Scotland managed to join the top-group of regions with discretionary incomes of more than £200 per week.
• Of the top three regions, the East once again recorded the fastest annual growth in discretionary income at 5.7%. 14

15. 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
• Growth in discretionary income in Scotland continued to accelerate in the third quarter and stood at 7.2%, up from 6.0% in the previous three-month period.
• Households discretionary spending power stood at £204 in the third quarter.
• Only three regions (Wales, Northern Ireland and the North East) posted higher growth rates for the latest quarter.
• The same regions also reported a decrease in unemployment which helped to offset the effects of rising inflation.
• After an uptick in the second quarter, discretionary income growth fell back to 8.1% in Q3.
• Whilst this is relatively high, compared to other regions, growth continues to be well below the double-digit rates seen in 2014 and 2015.
Households discretionary spending power stood at £105 in the third quarter, which is £8 higher than a year before.
• Discretionary income growth was supported by a slight decrease in unemployment. 15

16. 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, ;
For data enquiries please contact:
Kay Neufeld, Cebr Economist, ; 16

17. 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

18. 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

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

20. 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
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
£202
July 2012
July 2013
July 2014
£173
July 2015
£191
July 2016
August 2012
August 2013
August 2014
August 2015
August 2016
September 2012
September 2013
September 2014
£174
September 2015
£192
September 2016
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

21. 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
80.2
94.5
103.6
North East
108.2
122.4
134.0
West Midlands
145.1
163.8
172.6
Wales
151.3
165.2
181.6
Yorkshire & Humber
149.3
166.0
176.6
North West
150.1
168.0
180.6
South West
152.6
172.9
183.0
East Midlands
153.1
170.1
181.3
Scotland
173.2
190.1
201.6
South East
181.8
200.5
216.6
East
190.7
209.8
228.8
London
231.4
254.5
271.5 21

22. 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

23. 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 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

24. 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 Kay Neufeld 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, October 2016 24