It isn't a bad time to be a consumer at the moment. The cost of essentials is falling and inflation is at a record low, which hopefully means you're starting to feel a bit more confident about your spending power. Indeed, several reports have highlighted a rise in consumer confidence, and you may have started to notice that you've got a bit more cash left over at the end of the month. But what will you do with it?
Research from moneydashboard.com has found that spending seems to be the order of the day. According to analysis of consumer spending data, they predict that consumers will splash out on looking their best and enjoying themselves in the next three months, with the fall in the cost of essentials likely to lead to an increase in spending on clothing, holidays and alcohol.
Indeed, their calculations predict that spending on clothing will rise by 5.7% this quarter to an average of £30 per transaction, with a 7% year-on-year rise expected for footwear purchases, averaging £39 per purchase between April and June 2015. There's also likely to be a rise in spending on alcohol, with an average of £9 more being spent on such purchases (£41 per transaction). A rise in holiday bookings is also predicted, helped by the strong pound, with an estimated £230 being spent on getting away from it all.
But just where has all this extra disposable income come from? Well, a lot of it's down to cheaper energy, fuel and food costs, which are freeing up the purse strings and ensuring that your money goes further. The data predicts that the average spend on fuel will be just £33 in this quarter, a drop of 5% year-on-year, while £194 will be spent on energy bills, down by 3.1% compared with the same period in 2014. There's also likely to be a 3.9% reduction in the amount spent on food shopping, equating to an average fall of £1 per trip.
Despite this welcome boost in disposable income, the research suggests that few consumers will be looking to plough that extra cash into a savings account. In fact, savers are likely to squirrel away £6 less this quarter than they did during the same period a year ago, saving an average of £107. Reliance on credit is also expected to continue, with credit card repayments likely to increase 8.4% year-on-year, arguably because people will feel more confident about paying for items in this way.
Kalpana Fitzpatrick, finance expert, commented: "It appears that the falling cost of essentials and record employment rates have given us a sense of security that will see us reward ourselves this quarter. But it is so important that UK consumers are cautious during this spell of renewed optimism. It is easy at times like these to put more on the credit card and forget about saving, when it's actually vital that we take the chance to squirrel something away for a rainy day."
So, if you're feeling the benefits of falling costs and are wondering what to do with all that spare cash, don't get carried away! By all means, treat yourself now and again, but remember that any money you save now could come in very handy in the future. You could even think of it as a way to afford an even bigger treat a few months down the line!
If you can, put as much as you can bear into a dedicated savings account. An easy access version would be ideal for this purpose, allowing you to regularly add extra cash when you've got a few pounds spare and withdraw it when it's time to spend. Why restrict yourself to splashing out or saving – with a bit of organisation, you can do both!
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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