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Food and non-alcoholic drinks prices fell 2.6% in January and vehicle fuel prices dropped 7.3% compared with the same month last year, Asda’s latest Income Tracker shows.

UK families’ spending power continued to climb but the rate of growth slowed for the fourth consecutive month.

The average UK household had a weekly disposable income of £197 in the first month of the year - a year-on-year uplift of £12 - and net income of £625 a week.

An increase in employment across the UK helped the 6.7% year-on-year uplift, the Income Tracker showed.

A slowdown in wage growth and a steady increase in inflation - 0.3% - impacted the year-on-year rate of spending power growth.

The Income Tracker suggests a slowing rate of recovery is having a knock-on effect on British purse strings, with disposable income set to continue to grow at a slower rate than through much of 2015. 

However, average household income continued to grow faster than the cost of essential items in January, as the year-on-year price growth for essential items remained steady at -0.1%. Prices fell between December and January on items including food, drink and fuel, as well as clothing and footwear.

Andy Clarke, president and chief executive of Asda, said the outlook for 2016 was positive for UK households, with incomes increasing and employment buoyant. 

“Whether families choose to save their extra income or boost spending on leisure, treats or everyday essentials remains to be seen. The good news for consumers is that the competitive retail environment is translating to lower prices across the board.”

Sam Alderson, economist at Cebr, added: “We expect continued falls in unemployment as well as rising earnings growth over the coming months. Combined with sustained low inflation, households should be in for a good time in 2016 as far as their finances are concerned. This comes despite broader concerns over the strength of the UK economy.”