Families in the West Midlands are £13 a week worse off than a year ago, thanks to the rising cost of food and fuel.
The average household in the region had a disposable income of £122 a week, down from £135 last year, according to researchers.
It means middle-income residents have less money to spend on entertainment and luxuries, adding to difficult trading conditions for industry.
The study by the Centre for Economics and Business Research, commissioned by supermarket Asda, found the cost of essentials such as utility bills, food, housing and transport had risen by 7.7 per cent over the past year, significantly higher than the official inflation rate of 4.4 per cent.
But earnings have not kept up with the rising cost of living, the report said, while rising unemployment was making it harder for employees to negotiate pay increases in the months to come.
Figures earlier this month showed that unemployment rose by 60,000 nationally over the past three months. The jobless figure in the West Midlands rose by a relatively modest 2,000 to 168,000.
The region’s unemployment rate is 6.3 per cent, above the national average of 5.4 per cent.
Midland Conservative MP Philip Dunne said the latest study exposed the effect of the economic slowdown on ordinary families.
Mr Dunne (Con Ludlow) said: “Each month this year there has been growing evidence of an economic slowdown. The British Chambers of Commerce became the first business group to forecast that Britain would fall into recession.
“But this report from Asda highlights what this means for the average family struggling to make ends meet.
“It also shows how the Government has failed to protect families from the downturn.
“Gordon Brown has ridden a wave of economic growth, frequently heralding himself as the architect of growth and stability. What he failed to tell us is that he was not preparing the country for the inevitable economic slowdown.”
The Prime Minister is expected to announce measures to help families cope with rising bills as he launches a summer fightback, following his return from holiday.
Proposals include cash handouts for families finding it hard to cope with rising heating bills and cuts in stamp duty, in order to kickstart the housing market.
For the survey, disposable income was calculated by looking at take-home pay and subtracting the costs of food, clothing, housing costs, bills, transport, communication costs, health, children’s schooling and house maintenance.
It follows a warning earlier this month by Bank of England Governor Mervyn King that the UK economy could officially go into recession, defined as two successive quarters of negative growth, as it went through a “difficult and painful adjustment”.
And there was more gloomy economic news yesterday, as figures from the Council of Mortgage Lenders confirmed the mortgage slump had continued into July.