The Lloyds TSB Spending Power Report examines trends in consumers’ spending power, defined as income left after essential spending.
/EINPresswire.com/ Consumers are suffering at the hands of the rising cost of essentials and weak income growth, leaving discretionary spending power squeezed further despite the latest falls in inflation, according to this month’s Lloyds TSB Spending Power Report. After inflation, consumers’ discretionary spending power was 0.9% lower in January than the previous year, reducing the amount they have to spend on non-essential items by the equivalent of around £100 a year, or just under £10 a month
•Consumers’ spending power remains under pressure from the twin impacts of weak income growth and rising spend on essentials.
•Almost one in five consumers say they have no discretionary income after essentials, whilst those who say money is tight also increased in January.
•Income continues to grow at a slow pace. In January annual income growth was 2.6%.
•Spending on essential items increased again in January, up 4.9% from a year earlier, influenced by rising spend on utilities.
•As a result, consumers’ discretionary spending power saw the weakest growth in a year, growing by 1.8% in January.
•This means that after inflation, spending power fell 0.9% year on year last month. This is the equivalent of £100 less to spend a year on non-essential items.
•A quarter of consumers say that they will reduce their spending in the future, and more plan to increase their savings or pay down their debt.
One in five has no spending power after bills and essentials
Following on from Christmas, the proportion of people who say they have no discretionary income once bills and essentials are paid for has increased from 15% to 19%, meaning almost one in five believe they have no discretionary income at all. Similarly the number of consumers who now feel that money is tight has increased from 40% in December to 43% in January. People aged 35-64 (67%) and those living in the North and Midlands (40%) are most likely to have no discretionary income.
The twin impacts of low incomes and higher essential spending
Weak income growth (at 2.6% in January) is still the biggest contributing factor to the squeeze on spending power. Income continues to grow below the rate of inflation, despite recent falls. In January, consumers saw incomes fall by 1.5% in real terms.
At the same time, essential spending also continued to increase and reached another series high in January, with 4.9% annual growth. One of the main contributing factors is the rising cost of utilities. Recent cuts in gas and electricity prices are yet to feed through to reduced spending, which was up 9.3% from the year earlier. Similarly, spending on water bills rose 13.6% in January from the year previous.
Required debt repayments, which include all regular mortgage payments, loans and the minimum payment on credit cards, also increased by 1.1% in January from the year earlier, reversing the previous trend of a decline in this category. This is likely due to a combination of factors including the number of and the impact of increased credit card spending over Christmas.
Regionally, Scotland saw the biggest average increase in essential spending in January, with spending on household bills (+5%) and auto fuel (12%) all rising at a faster rate than the rest of the UK. The North follows behind with household bills up 4% and fuel up 9%. In contrast London has seen the smallest rise in essential spending in these categories: household bills (+3%), and fuel (+6%).
Consumers look to future proof their income
More people believe they will have less spending power in six months’ time (27%), as opposed to those who are optimistic they will be better off (21%). As a result it is unsurprising that a quarter of respondents (26%) intend to be spending less in six months’ time; one in four (24%) plan to be saving more while nearly a fifth (18%) are likely to pay down more debt. At a regional level, Londoners now intend to pay off somewhat more debt than they did in December (18% vs. 10%). Those living in the South (28%) and the North West (27%) displayed the greatest intention to save
Jatin Patel, director of current accounts for Lloyds TSB, comments:
“It is worrying that a fifth of consumers currently say that they have no spending power, after they have covered all bills and essential spending. Any further squeeze on their wallets will certainly be felt. Although we have seen inflation drop to its lowest level for 14 months, it is clear that this is not yet filtering into consumers’ daily lives. Spending on many items, including utilities, are still rising, and in January were at their highest level for the past 18 months. Encouragingly, consumers are not burying their heads in the sand as many are looking to cut back their spending and pay down their debt, where they can.”
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 ² 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.
Media Contact:
Claire Barratt
Lloyds TSB
0845 300 0000
http://www.lloydstsb.com
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