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Growth in consumer spending power

Growth in consumer spending power

Category: Money

Updated: 28/01/2016
First Published: 28/01/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The general consensus has been that consumer spending power improved in the last year, driven by a combination of low inflation and wage growth, and new figures from Lloyds Bank confirm the extent of the improvement.

Rising confidence

The latest Lloyds Bank Spending Power Report shows that consumer confidence most definitely edged higher towards the end of 2015, driven by "an improved attitude towards the current employment situation", with the overall Spending Power Index rising by three points in December to stand at 164.

Respondents to the survey said that they were feeling more optimistic about their current situation for the third consecutive month, with the index rising by six points to 216. This was driven by a further increase in sentiment towards Britain's employment situation as a whole, the report noted, and coincides with official figures which show that unemployment has fallen to its lowest level since 2005.

Patrick Foley, chief economist at Lloyds Bank, commented on the findings: "Spending power confidence strengthened in December, driven by an improvement in households' view of the employment situation, particularly among those who say money is tight.

"With the pace of job creation having picked up recently, and inflationary pressures still muted, the outlook for consumer spending remains generally positive. This suggests domestic economic growth should continue to underpin the UK recovery despite a more uncertain global environment."

Lower spending

Another positive finding was the fact that essential spending pressures continue to decline, with Lloyds' economic figures showing that spending in December was 1.6% lower than at the same time last year. This has been largely driven by falling fuel prices, with actual spend dropping by 8.6% year-on-year.

Food spend in December was also below that of December 2014, down 0.9% year-on-year, and given that food accounts for 40% of all essential spending, the latest fall has had a particularly positive impact on the reduction in spending pressures. This is reflected in the consumer research, with the proportion of people saying that they're paying less or a lot less on groceries rising by 1% in December to stand at 11%.

It isn't all good news, however, as although there is a clear rise in positivity regarding job situation and essential spending, sentiment towards personal financial situations has taken a downturn. In fact, the score for this measure dropped by a notable seven points in December to stand at 24, which is perhaps unsurprising considering figures which show that pay growth has hit a nine-month low.

Not only that, but the proportion of people with disposable income also fell during the month, with 80% of respondents having such income available – down three percentage points from November and back to the same level recorded in September. However, on a brighter note, it's still 3% higher than in December 2014.

Stable outlook

On the whole, the outlook for the future remains positive. The Future Situation Index remains stable at 112, driven by a slight improvement in sentiment towards future disposable income, the report noted – 54% of respondents feel that they will have the same amount in six months' time – which counterbalances the drop in sentiment towards own job security (down three points).

Furthermore, there's been a "significant increase" in the proportion of people who think they'll be paying off less debt in six months' time, rising from 9% to stand at 13% in December, which could suggest that more people are getting in control of their debt and therefore have less to pay off.

All in all, things are looking positive for consumers, and it's hoped that the outlook will continue in the year ahead.

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