Household finances have deteriorated for the first time in three years, with discretionary income falling year on year in March as inflationary pressures and global uncertainty weighed on family budgets, according to the latest Asda Income Tracker.
Average household discretionary income dropped by £5.32 a week compared with February, leaving families with £257 per week after covering essentials. The decline marks the first annual contraction since 2023, signalling a reversal after a period of gradual recovery.
The downturn coincided with a renewed rise in inflation, which climbed to 3.3 per cent in March, reversing the easing trend seen earlier in the year. Transport costs were the primary driver, with inflation in the category jumping to 4.7 per cent, largely due to a sharp swing in fuel prices from a 4.6 per cent annual fall in February to a 4.9 per cent increase in March.
Lower-income households continue to face the greatest strain, with the lowest earners experiencing a £74 weekly shortfall between income and essential spending, close to levels seen during the cost-of-living crisis.
The data also points to a broader weakening in financial resilience, with income growth slowing across most regions despite unemployment edging down to 4.9 per cent. Around 60 per cent of households now feel their income stretched further a year ago than it does today.
Sam Miley, head of forecasting and thought leadership at Centre for Economics and Business Research, said March’s figures highlight the early impact of geopolitical disruption on consumers.
“Q1 2026 marked another quarter of steady growth in the Income Tracker, driven primarily by easing inflation in January and February amidst weak earnings growth. Data for March have given the first indications of how UK consumers are likely to be affected by ongoing supply disruptions from war in the Middle East,” he said.
“Unlike in the cost-of-living crisis in 2022/23, greater labour market slack reduces the risk of a wage-price spiral, which lowers the incentives for aggressive interest rate hikes from the Bank of England. Nevertheless, with disruption ongoing and no end in sight, further contractions in the Income Tracker seem likely over the rest of 2026.”
Looking ahead, continued volatility in commodity prices is expected to keep pressure on inflation and household finances, presenting ongoing challenges for retailers as shoppers become increasingly price sensitive.