Recent upturn in UK essential spending falters

Consumer spending on essentials fell once more in April, with the pace of decline increasing for the first time since November, according to the latest Lloyds Bank Spending Power Report.

Reversing a recent upward trend, people spent 0.9% less on essentials year-on-year in April. This compares to -0.6% in March, -0.8% in February and -1.0% in January.

The fall in the growth rate is driven largely by decreasing food spend, the largest single contributor to essential spend. This reduced sharply to -0.7% during the month, having been broadly flat since the turn of the year.

Expenditure on fuel remained in negative growth for the 30th consecutive month, falling to -5.4% compared with -4.8% in March. However, this rate of decline remains slower than the much stronger declines of over -7% seen in 2015.

There also continues to be strong negative growth on utilities spending, with gas and electricity down 5.0% in April, continuing a trend of negative growth dating back to May 2014.

The analysis from Lloyds Bank coincides with recent figures from the ONS, showing average store prices in April fell 2.8% compared to a year earlier, with a 7.3% slump in fuel prices and food prices dropping 2.3% contributing to the decrease.

Robin Bulloch, Managing Director at Lloyds Bank, said: “Whilst we saw a modest upturn in essential spending in the first quarter of 2016, April signaled a return to the negative growth pattern seen during much of last year. The sharp decline in food spend, such a major part of all our outgoings, was a key factor. With prices also falling at the tills, and disposable income remaining stable yet again, the research shows this may be freeing up funds to pay down debt.”

Disposable income

Consumer research, conducted in conjunction with Ipsos MORI, shows that the proportion of people who say that they have money left over after they have covered all monthly outgoings continues to remain stable at 81%.

However, when it comes to how people choose to use their disposable income, the proportion electing to spend now stands at 51% compared to 53% in March.  The proportion of people choosing to pay off debt is now 19% compared to 17% in March.

Consumer sentiment

People’s sentiment towards their current situation fell back in April, falling 9 points since March, dragged down by decreases in sentiment towards Britain's employment situation (-4 points) and household financial situation (-1 point).

Perception towards personal financial situation improved slightly, rising 3 points from March to +29. People’s perception of the country’s financial situation also rose slightly in April, up 2 points to stand at -19.

Attitude towards the future remains stable, with 22% of people thinking they will have ‘much more or somewhat more’ disposable income in 6 months’ time, up 1pp since March. Own job security was also up 5 points to stand at +59.

Patrick Foley, Chief Economist at Lloyds Bank, said: “Household confidence around current economic circumstances took a step back in April, driven partly by a less buoyant view of the employment situation. Nevertheless, consumers’ assessment of future prospects continues to provide some reassurance, with the outlook for discretionary income and spending seen as broadly stable.”