UK’s lowest earners lose spending power to energy costs
UK’s lowest earners lose spending power to rising energy costs, widening the gap between rich and poor households in the country.
The lowest-income households in the United Kingdom are the only demographic seeing their weekly spending power drop, a new report reveals.
According to the Asda Income Tracker, compiled by the Centre for Economics and Business Research (Cebr), the gap between the richest and poorest households has widened by £30 a week over the past year. This pushes the bottom fifth of earners into a weekly shortfall of £71.
Households in this bracket earn an average of £11,000 annually. They spend a disproportionately large share of that limited income on essentials.
The figures come as UK inflation rose to 2.9% in July, up from 2.6% in June. Higher household energy bills are the main contributor to this trend.
Energy costs push essentials higher
Energy inflation jumped to 4.6% in July from just 1.2% in June, following the latest reset of the Ofgem price cap. Reviewed on a quarterly basis, the cap sets a ceiling on the per-unit rate suppliers can charge on standard tariffs but does not limit total bills, so actual costs still depend on how much energy a household uses.
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A further reset is due in October, which is expected to add to the strain on household finances.
Cebr forecasting and thought leadership head Sam Miley said: “July was always going to be a difficult month. The Ofgem price cap was reset to reflect price changes in global energy markets, which have been massively disrupted by the conflict in the Middle East. Though the warmer weather may have encouraged less energy consumption, households still faced a significant increase in costs on a per unit basis.”
Essential costs for under-30s are rising faster than their wages. These young adults spend 68.2% of their gross income on essentials like housing and food, a burden the report attributes to steeper housing costs, weaker pay in early careers and climbing youth unemployment.
This reality creates a difficult cycle for low-income earners. They must allocate a massive portion of their wages to survive, leaving little room for savings or discretionary spending. As energy prices rise further in the coming months, the pressure on these households to reduce consumption or cut other necessary expenses will only intensify.
The impact varied significantly by age. Households at the other end of the age spectrum fared considerably better: gross incomes rose 4.8% among those aged 65 to 74 and 5.0% among the over-75s, both ahead of gains recorded across every working-age bracket.
