Consumer spending power weakens

| October 15, 2012
Consumer spending power weakens in September

Annual income growth fell to 1.7 per cent last month, its lowest level since December 2010, according to Lloyds Banking Group’s Spending Power Report for September.

This was largely responsible for a 0.9 per cent fall in real discretionary spending power, with the amount consumers have to spend on non-essential items falling around £8 per month.

Taking into account inflation, real income growth was negative, at minus 1.2 per cent.

Annual growth in essential spending fell slightly, by 0.1 per cent to 3.3 per cent, compared with August.

The amount spent on petrol and diesel grew by 2.5 per cent in September compared with 0.7 per cent in August, but this increase was offset by a continuing slowdown in growth of the amount spent on household bill.

Patrick Foley, Chief Economist at Lloyds Banking Group, said: “Despite the volatility in the data, it is clear that the underlying trend in real incomes is negative despite the fall in inflation from last year’s high.

“I expect inflation to fall only slightly further over the coming months so any improvement in the situation will need to be driven by growth in incomes, and this will depend on the wider economy.”

The squeeze on household incomes will tighten even further when the latest increases in energy prices take effect.

Both British Gas and Npower have announced price increases.

Lloyds’ survey also revealed an increase, compared with August, in the proportion of people who felt the UK’s economic situation was “not at all good”, to 45 per cent.

Looking to the future, a recent report by the Resolution Foundation think-tank suggests that living standards for low and middle income households will be poorer in 2020 than they were in 2008.

The report, Who Gains From Growth? suggests that incomes for the lowest groups will decline by up to 15 per cent by 2020.

This means that a household with net income of £10,600 a year in 2008 would earn the equivalent of £9,000 a year by the end of the current decade.

The report was based on the assumption that GDP will recover steadily and then grow at 2.5 per cent from 2015.

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