Spending Power Report - Rising Costs of Household Bills Stifles Growth in Spending Power

    LONDON, ENGLAND, October 21, 2011 /24-7PressRelease/ -- The ongoing squeeze on discretionary spending power continued into September. Discretionary spending power, after allowing for inflation, saw almost zero annual growth for a second consecutive month.

- Incomes are rising below the rate of inflation at 3.5% compared with a year ago. As a result, incomes are falling in real terms, and are 1% lower than a year ago, continuing the trend of falling real incomes evident over the past 16 months.
- The squeeze from essential spending is increasing. Spending on essentials is rising at an increasing pace, now 3.5% up from a year ago. Growth in spending on gas and electricity has increased the most in recent months.
- London is seeing the biggest squeeze on spending, as incomes grow more slowly than elsewhere in the country, and well below the national rate of inflation.
- Consumers say they are reducing both their spending and saving as pessimism grows around employment prospects, the housing market and inflation.

No let up in the squeeze on personal finances
For the third consecutive month, year on year growth in discretionary spending power fell back slightly and, after inflation, is showing almost zero growth (around 0.3%), according to the latest Lloyds TSB Spending Power Report.

As a result spending power growth is running around 2% below the level of growth expected in a healthy economy, and consumers are continuing to feel a squeeze on the amount they have to spend once essentials have been accounted for. Around half the population (46%) say they are just meeting monthly outgoings and money is tight for them.

Patrick Foley, chief economist at Lloyds TSB, says:
"It is clear that over the last few months initial signs of an improvement in spending power have stalled. Whilst the squeeze on consumers is not as intense as earlier in the year, flat spending power after inflation is still uncommonly weak and explains the high degree of consumer pessimism.

"With further energy price increases still to hit, and little sign of any near-term improvement in economic growth and employment, income growth and spending power are likely to remain under pressure in the coming months."

Rising costs and falling wages driving squeeze on spending power
Incomes continued to fall in real terms in September, and were 1% lower than a year ago. At the same time spending on essential items rose and is now 3.5% higher than it was a year ago. This is the highest it has been all year.

Incomes in London are coming under the most pressure, and grew by only 1.1% in September, well below the current rate of inflation. This meant, despite a fall in essential spending of 1.4% due to less pressure from debt repayments and household bills, those in London suffered the biggest squeeze on their spending power, with year on year growth in September well below the national rate of inflation, at 1.8%.

Automotive fuel and water bills have consistently seen the biggest rise in spending, and were at 13.9% and 10.2% respectively in September. However, it is the growth in spending on gas and electricity that has increased the most in recent months. Gas and electricity was 4.7% higher in September compared to a 3.2% annual increase in August.

On a regional level household bills rose more swiftly in the North and Scotland, rising 2.4% and 3.9% respectively, in comparison London saw an increase of just 0.3%. However, as we move into winter and the recent utility price rises start to feed into bills, it is likely all regions will see steeper increases over the coming month.

Consumers cut back on spending and reduce savings as pessimism grows
Pessimism regarding the housing market (83%), employment (91%) and current levels of inflation (87%) all increased in September with a higher percentage of respondents feeling these were not at all good in September.

At the same time there has been a significant decrease in the likelihood to save once household bills and essentials have been paid (42% in September compared to 46% in August), as the number of people with money left over once their essentials are accounted for decreased by 3% to 29%.

Amongst respondents with spare income to spend on discretionary purchases, an increasing proportion state that they are 'very unlikely' to increase spending on food or groceries (17% vs. 21%), to treat themselves (19% vs. 22%) or spend on a special meal (21% vs. 25%).

Jatin Patel, director of current accounts for Lloyds TSB, comments:
"There has been a prevailing sense of negativity for several months, and last month was no different with an overwhelming majority feeling negative about the country's financial situation, their personal finances, the housing market and inflation.

"This is feeding into personal behaviour, with more consumers now less likely to spend on non essential items, and many dipping into their savings rather than saving any surplus cash. This will feed through to muted activity on our high streets."

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.

All the data (numbers and charts) derived from Lloyds TSB current accounts in the report is based on three month averages of the raw current account data. Data is extracted from Lloyds TSB current accounts. Actual income and expenditure is analysed on a rolling monthly basis. (previously data has been measured from 21st-20th of each month, as a result there have been some adjustments to the historical data this month, as we changed to measuring the index on a calendar month basis).
There is a strong seasonal pattern to the Spending Power Index, and this may change over time as consumers and firms change their usage of different payment types. The methodology of the index may be altered in future to correct for some of these changes, once a longer history of data is established.

Consumer research is compiled in conjunction with TNS Financial and Professional Services. A total of 2,011 consumers were questioned. Interviewing took place via an online survey between 9th and 18th September 2011. Some questions are however based on sub-groups within the survey, including: 3a) Based on 1,661 consumers who have disposable income left over after paying for household bills and essentials.

Website: http://ww.lloydstsb.co.uk

# # #