Decline in UK essential spending slowed in May
Consumer spending on essentials fell once again in May, though the pace of decline was at its slowest since March 2015, according to the latest Lloyds Bank Spending Power Report.
Posting an 18th consecutive month of negative growth, people spent 0.4% less on essentials year-on-year. This compared to falls of 0.9% in April, 0.6 % in March and 0.8% in February.
The key driver of this rate remains spending on food and drink, which accounts for around 40% of all essential spend. This climbed to a marginally positive 0.1% having reduced sharply by 0.7% during April.
Expenditure on fuel continued to decline year-on-year, falling by 4.4% in May. This compared with a fall of 8.6% at the end of last year, reflecting rising prices at the pump in the first half of 2016.
Spending on utilities also dropped – for the 25th consecutive month – as outlay on gas and electricity was down 4.8%.
Robin Bulloch, Managing Director at Lloyds Bank, said: “With spending on essentials falling at its slowest rate in well over a year, and levels of disposable income again unchanged, people appeared more confident about their finances last month. With the result of the referendum now known, this should provide a valuable reference point for any change in sentiment in the months ahead.”
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 remained stable at 81%.
When it comes to how people choose to use their disposable income, spending remained the most common option at 53%, up 2pp since April. The proportion of people choosing to pay off debt was 18%, down 1pp, while those looking to save was unchanged at 30%.
Consumer sentiment
People’s attitude towards their current situation picked up in May, rising 3 points, buoyed by improvements in sentiment towards their personal financial situation (+1 point), Britain’s employment situation (+3 points) and household financial situation (+3 points). Perception of the country’s financial situation also rose slightly, up 4 points.
This contrasts with a slightly more negative view of the future, hampered by declining confidence in job security, which fell by 4 points.
Patrick Foley, Chief Economist at Lloyds Bank, said: “Spending power confidence held steady in May. Stronger household finances and an improving employment situation helped to lift perceptions of current circumstances. Nevertheless, a sense of caution continues to frame consumers’ assessment of the outlook, with saving still the most popular choice for any future discretionary income. At the time of the survey, the referendum outcome wasn’t known, but if sustained, the recent fall in the currency would put upward pressure on living costs over the next year.”