The average family is £5 a week worse off than it was a year ago.

UK families only had £175 a week to spend in July compared with £180 a year ago, according to supermarket giant Asda.

Its income tracker, compiled by think tank the Centre for Economics and Business Research (CEBR), found that stubbornly high inflation and poor earnings growth is squeezing household budgets.

“The Bank of England suggests that inflation will remain close to three per cent for the remainder of 2010 and above two per cent through 2011,” said CEBR economist Charles Davis.

“This is going to occur within the context of a weak labour market and looming public sector job cuts. As such, the outlook for earnings growth is poor and it is unlikely to keep up with growth in the price of essential goods and services.

“The combined impact?” he said, “Reductions in family spending power into 2011.”

At Asda, chief executive Andy Clarke said: “The latest figures back up what we forecast earlier in the week, these are increasingly uncertain times for millions of families across the UK, and our customers will need us more than ever.”

“We’re shopkeepers not economists, but in this ‘age of austerity’ we know the pennywise will thrive.”