UK households had slightly more money left over after paying essential bills in May than a year earlier, but many consumers continue to face significant financial pressures, according to the latest Asda Income Tracker.
The report found that the average household had £258 per week of discretionary income in May, up £8.28 compared with the same month last year.
The improvement comes as inflation remained at 2.8 per cent, matching its lowest level since March 2025, while food and non-alcoholic drinks inflation eased further during the month.
Despite the increase in spending power, the tracker highlighted continued financial strain for many households, particularly those on lower incomes.
Around one in five households had just £12 a week left on average after covering essential costs, while the lowest-earning 20 per cent of households continued to face a weekly deficit of around £73 after spending on necessities, leaving them unable to fully cover basic expenses such as food and household bills.
Higher-income households continued to see stronger growth in discretionary income, benefiting from the fact that essentials account for a smaller share of their overall spending and providing greater protection from increases in the cost of everyday goods.
Asda said warmer weather could help reduce energy consumption and provide some relief to household budgets. However, rising living costs are expected to continue limiting spending among lower-income consumers.
Sam Miley, head of forecasting and thought leadership at the Centre for Economics and Business Research (Cebr), said the tracker pointed to a fragile outlook for household finances.
"The Asda Income Tracker continued to show weak momentum in May 2026," he said.
"While annual growth came in at 3.3 per cent, discretionary incomes grew by only 0.6 per cent month-on-month and remain below the levels seen in January of this year. The balance of risks for the Income Tracker's outlook remain firmly on the downside."
Miley warned that weakening labour market conditions and slower earnings growth could further squeeze household budgets in the coming months.
"The most recent labour market data show labour demand continuing to unravel, putting downward pressure on earnings growth," he said.
"Meanwhile, elevated inflation is expected to be exacerbated once household energy prices are recalibrated in July. The prospect of interest rate cuts, which could drive stronger economic activity, is thus expected to be delayed at least until next year."
He added that these pressures were likely to lead to a contraction in discretionary incomes from the third quarter onwards.