The decline in disposable income has slowed down although family spending power still fell by £9 a week in January 2012, the Asda Income Tracker has revealed.

The grocer’s monthly spending monitor showed a further improvement on the pace of decline in recent months, with the lowest annual decline since June 2011.

This left the average UK family with £147 of weekly disposable income – 5.5% down from the same time last year.

While income growth remained weak at just 1.7% over the year to January, a continued slowdown in the rising cost of essential items eased pressure on family budgets.

The trend of smaller year-on-year declines continued, as consumer price inflation drops back from its peak last year.

The official measure of the rising cost of living slowed notably in January, as the consumer price index rose over the year by 3.6%. This is the second consecutive sharp slowdown, and the largest two-month fall in the rate in three years.

Asda reported: “A significant contributor to the sharp decline is the fact that rise in the VAT rate to 20% last January is no longer shown in the annual price comparison.

“However this price increase is still built into the cost of living and will have a long-lasting effect on family purchasing power. The news in January that utility firms cut back the cost of power also offered a welcome break.”

Unemployment increased to 8.4% during the three months to December– up from 7.8% at the start of 2011 – a trend that will continue to pull household finances away from growth.