Lloyds TSB Spending Power Report - Consumer Confidence Declines as Spending Power Growth Stalls

    LONDON, ENGLAND, August 19, 2011 /24-7PressRelease/ -- - Consumer confidence in decline. Consumers' sentiment was adversely affected by the wider economy, inflation fears and their own financial situation for a third consecutive month.
- Stretched consumers are increasingly looking to savings to help make ends meet. The amount of consumers on the tightest budgets who say they are dipping into their savings increased further in July, the highest it has been this year.
- Weaker income growth is hitting spending power. Incomes continue to fall in real terms down 1.8% in July compared with a year earlier.
- Growth in essential spending remained unchanged from the previous month at 3.2%. However, concerns about further price rises in gas and electricity are contributing to the increasing worries consumers have about further falls in spending power due to the rising cost of essential items.

Spending power growth falls back in July
Discretionary spending power after inflation has stalled over the past two months and fell back to 0.2% year on year growth in July, according to the latest Lloyds TSB Spending Power Report. This follows an upward trend throughout the first half of the year, when spending power growth improved by 1.6% points in five months.

Spending power is growing strongly in nominal terms. However with inflation on non-essentials above 3%, in real terms it was broadly flat in July. The GBP30 additional spending power available in July reduces to less than GBP2 once inflation is taken into account.

Patrick Foley, chief economist at Lloyds TSB, says:
"Spending power stalled in July after the strong upward trend over the first half of the year. The improvement in household incomes, albeit from a very low starting point, was largely driven by growth in employment and the latest data is likely to reflect a softening in jobs growth in July.

"Looking ahead, the anticipated gas and electricity price increases will put upward pressure on essential spending. Without offsetting reductions in inflation elsewhere or further improvements in employment, it is unlikely that spending power will improve significantly in the near term."

Consumer confidence low as savings are used to cover essential spend
Weakening spending power growth is reflected in consumer confidence, which has steadily decreased over the past few months. Concern at the financial situation of the country, which remains extraordinarily high at 92% of respondents, and consumers' own finances are weighing on sentiment.

At the same time, the balance of those finding money is tight and those who do not have enough to meet monthly outgoings is starting to shift. One in ten consumers currently do not have enough to meet monthly outgoings, rising to 14% for those aged between 35 to 44, a 5% point increase in July.

With money increasingly tight it appears more of those who use all their income to cover essential spending are dipping into their savings to get through the month. This figure rose 4% points in July to one in six (17%). Though not a significant increase, this is the highest this figure has been all year.

Mike Regnier, director of current accounts for Lloyds TSB, comments:
"With an increasing amount of negative news flow around price rises in the last month it is not surprising that this has fed through to consumer confidence. However, it is also clear that consumers are feeling the squeeze on their spending power. More consumers didn't have enough to make ends meet, and as a result they are having to dip into their savings to get through the month."

Income growth weakens and inflation worries increase
Weak income growth had the greatest impact on spending power. Incomes have been falling in real terms for well over a year, and the annual growth rate fell back further in July to 1.8%. Weakening income growth is an indication that employment is not growing as quickly as it was in the first half of the year.

Annual growth in essential spending was unchanged at 3.2% in July. This reflected an easing in inflationary pressure and the continuing reduction in required debt repayments over the past year. The latter effect has been steadily dwindling in recent months. Required debt payments fell 1.3% in July, compared to 4.7% in January.

The prospect of debt payments stabilising combined with price rises for gas and electricity still to come into effect, means that the likelihood is essential spending is set to rise in the near term. Unsurprisingly, this fear is reflected in consumers' feelings about inflation. 89% of respondents are now worried about current levels of inflation, up from 85% in June. A higher proportion of these believe it is not at all good, rising 4% points last month to 34%. An increasing proportion of 30 to 34 years olds believe the current level of inflation is worrying, up 6% points to 91%.

The main inflationary concern is gas and electricity prices, which received a lot of attention in July following further price rise announcements from the main utility companies. The number concerned about rising prices in this area increased by 7% points in July to 84%. This was closely followed by food prices at 82%.
Expectations have worsened
Consumers' outlook deteriorated in July. More respondents (29% up from 26%) felt they will have less money in six months time, largely driven by the worries over increasing household bills.

The proportion of respondents who believe they will have less spending power in six months time increased across nearly all regions with the biggest change seen in Scotland (18% to 32%), with the most concerned region being the South West, at 37%. There were also deteriorations in prospects amongst those aged 35 and above, increasing 4% points to 23%.

Notes to Editors:
The Lloyds TSB Spending Power Report examines trends in consumers' spending power, defined as income left after essential spending. Each month it covers both changes in actual spending power and in consumers' perceptions, as well as recording how consumers are reacting. The Spending Power Report measures payments into Lloyds TSB current accounts and subtracts essential spending - rent, mortgage and debt payments, utility bills, council tax, TV licences, food and fuel. Additionally, 2,000 consumers are asked about their current and future spending habits and how their commitments affect their spending power.

The index is derived from the current account data of all Lloyds TSB customers, the largest provider of current accounts in the UK. This provides a robust and representative sample of the entire UK market.

Website: http://www.lloydstsb.com

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