UK families were on average £12 better off a week in June compared with last year, representing a 7.8 per cent increase as interest rate cuts continue to help mortgage payers.

It is the largest year on year rise since the Asda income tracker began, due to interest rate cuts and the lowest rate of consumer price inflation since September 2007.

The average household in June had £164 a week of discretionary income. Gross income rose by £10 a week last month, compared with June 2008. After tax, average family incomes increased £7 a week in June, year-on-year.

But Asda president and chief executive Andy Bond remained cautious.

He said: “Despite households being £12 a week better off, and although the pace of job losses has slowed, unemployment is likely to continue rising in the coming months, affecting consumer confidence.

“Many families still face reduced household wealth and high debt levels so most people will probably end up saving it or using it to pay off debt. It is essential that retailers continue to fight inflation and focus on lowering prices.”

Charles Davis, an economist at Cebr who compiled the report for Asda, said: “This month’s year on year comparison is exaggerated somewhat by base effects from June 2008 when prices were rocketing. But nevertheless the Asda income tracker shows how interest rate cuts are helping households. However, labour market weakness and household balance sheet rebuilding continue to provide reasons for caution on the outlook for consumer spending.”

Asda expects consumer price inflation will fall further towards – and possibly below –1 per cent, and therefore predicts Asda spending power indicator to “continue to rise in coming months”.