Lloyds TSB Spending Power Report States That Spending Power Squeeze Continues Despite Falling Cost of Essentials

    LONDON, ENGLAND, June 27, 2012 /24-7PressRelease/ -- Squeeze on spending power remains as inflationary pressures ease

The 0.3% decline in spending power, after inflation, illustrates that conditions for consumers remain tough largely due to weak income growth. On average, consumers had around GBP34 less to spend on non-essential items in May compared with the same time last year.

Due to unseasonal weather and calendar effects, extra caution should be applied when interpreting recent short term movements in the data. However, it does appear that there were some positive signs for consumers in May as growth in essential spending fell back to 3.9% from 4.6% in April - likely reflecting recent falls in inflation.

Despite recent falls, the current level of inflation remains high. Consumer research indicates that 79% of people believe the current level of inflation to be 'not good' or 'not at all good', compared with 85% in April and 83% in May last year. At the same time, the proportion of people surveyed who say they have noticed the cost of essentials and everyday spending increasing over the past 12 months declined, but remains high at 83%.

Patrick Foley, chief economist at Lloyds TSB, says: "Weak income growth and stubbornly high inflation is ensuring that the squeeze on consumers is remaining in place longer than many thought it would. Growth in spending on essentials is now showing signs of moderating which is positive. But the weakness in income growth is severely limiting the benefits for consumers.

"I would expect the benefits of falling inflation on consumers' spending power will be limited until we also see a stronger economy and faster growth in incomes."

People aged 35- 54 were found to be more likely to say they do not have enough money to meet monthly outgoings, while those aged 24 or under are least likely to feel financially restricted.

Consumers expect to see spending power remain tight but more look to save

Despite some positive signs in May, future discretionary income expectations continue to remain negative with more feeling that they will have less to spend in six months time (25%) than more (20%). Currently 63% of consumers spend at least three quarters of their monthly income on household bills and essentials - a decrease of three percentage points from April.

Consumers are however beginning to show a greater propensity to save should they have money left over at the end of the month. 59% said they would be likely to save any leftover money compared with 56% in April, and driving this across all age groups was the need to save for financial security.

Jatin Patel, director of current accounts for Lloyds TSB, comments:
"Consumers are still under real pressure financially, but we are beginning to see some initial signs that the squeeze on household finances may be easing as affordability of essential items improves.

"Our research suggests that a growing number of people have money left over at the end of the month following outgoings. Nonetheless, people continue to spend a large portion of their monthly income on household bills and essentials, and it is unlikely that we will see any significant further improvement until income growth returns to more positive levels."

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