Spending power falls as consumers fear further squeeze post-Budget

By Daniel Hunter

The Lloyds TSB Spending Power Report reveals that, after inflation, spending power fell to -1.1% in February, meaning consumers had the equivalent of approximately £10 less a month to spend on non-essential items.

This is the second consecutive month spending power has been in negative territory and suggests an increased squeeze on household budgets since the turn of the year.

As seen in recent months, weak income growth and high inflation continue to be the main determining factors placing downward pressure on consumer spending power. However, as the UK awaits the Chancellor’s 2013 Budget, many consumers are also mindful of what impact this might have on their future personal circumstances.

Consumer research shows that more than half (55%) of people surveyed believe they will have less money to spend each month post-Budget, while just 6% expect to have more. Within this, there is a clear distinction between age groups, with 46% of those aged 18-34 saying they expect to be worse off compared to 61% of 35-64 year olds.

To further compound concerns, annual spending growth on essential items increased in February (2.6%) compared with January (2.4%), although still remains significantly lower than the 4.6% growth seen at the same time last year.

Annual spending growth on food and drink — the largest component within the essential spending category — rose to its highest level for six months at 3.8% year-on-year. Conversely, February recorded a continuing decline in spending on debt payments (-1.3%), helping to relieve some of the pressure on budgets.

“Household budgets remain under pressure. Growth in spending on essential items remains stubbornly high despite the weakness in the economy, with food and drink spending again the largest driver of the squeeze," Patrick Foley, chief economist at Lloyds TSB, said.

"Consumers don’t expect any relief from the Budget, and the recent fall in the exchange rate is likely to add to pressures. Consumer spending is therefore likely to remain weak through the first half of 2013 at least, keeping recovery in the wider economy far from assured.”