Easter fails to breathe new life into spending power

There was little respite for consumers in March as weak income growth continued to put downward pressure on household budgets, leaving discretionary spending power after inflation in negative territory for the fourth consecutive month, according to the latest Lloyds TSB Spending Power Report. At -0.8%, the position remained unchanged to February, meaning consumers had the equivalent of approximately £10 less a month to spend on non-essential items than a year ago.
 
Annual spending growth on essential items continues to track the overall rate of inflation but, at 2.5%, remains close to its lowest over the three year life of the survey.  Within essential spending, annual growth on food and drink spend increased for the second consecutive month to 3.9%, while spending growth on gas and electricity bills also continued the upwards trajectory seen in recent months, climbing to 4.7%.  This suggests that the price rises introduced by UK energy suppliers towards the end of 2012 may now be feeding into household bills.
 
Such rises were partly offset in March by falls in others areas of essential spending.  Notably, there was a continued decline in spending on debt payments (to -1.8%), while consumers also spent less on automotive fuel during the month compared with the same time last year (-0.7%).
 
With the overall cost of essential items rising, weak income growth would appear to be placing greater strain on budgets and consumer sentiment.  Consumer research reveals that two thirds (66%) of people have seen no change to their income or are receiving less over the past 12 months.  Such demands on the purse strings may go some way to explaining the concerns around future discretionary income reflected in March's consumer sentiment figures.
 
Patrick Foley, chief economist at Lloyds TSB, says: "Whilst growth in spending on essential items isn't particularly high, consumers are under increasing pressure again because of slow growth in their incomes. With reductions in benefit payments hitting this year, and little sign of improvement in the Eurozone to drive increased business confidence, this pattern looks likely to continue throughout 2013. Sustained recovery in the economy, and in consumers' finances, seems some way off yet."
 
Consumer sentiment: Current situation
 
Consumer concerns towards the UK economy deepened in March with those saying that it is ‘not at all good' increasing by four percentage points to 47%.  Women continue to be more negative about the economy with just under half (49%) stating that the situation is ‘not at all good' compared with 44% of men.
 
Whilst pessimism colours sentiment towards the country's prospects, consumers have a more positive outlook when it comes to their own finances.  51% feel that their situation is either ‘excellent', ‘very good' or ‘somewhat good', while less than half (49%) feel their situation can be described as ‘not good' or ‘not at all good'.  The 25-34 year old age group are most optimistic about their personal finances with one in 10 describing it as ‘excellent' or ‘very good'.
 
Fears around increasing gas and electricity prices remained in March, possibly fuelled by the continued wintry conditions during the month.  When asked about rising inflation, over three quarters (78%) of respondents said they are concerned about increasing utility prices.  Likewise, 77% are concerned about rising inflation on the cost of food, and over two thirds (68%) are concerned about the effect it would have on fuel prices.
 
Consumer sentiment: Future situation
 
After a short period where confidence in the future appeared to grow, the balance of opinion on future discretionary income crashed from -2% (the difference between those saying they will have more and those saying they will have less in six months time) back down to -9%.
 
The key impact of this is that consumers now no longer believe they are going to be able to save more than they currently do going forward.  The balance of opinion (the difference between those saying they will save more minus those saying they will save less over the next six months) fell to 0% in March having stood at a record-equalling high of 5% in February.