Consumer sentiment in the economy grows

Nia Williams

May 29, 2013

The Lloyds TSB Spending Power Report for April reveals that confidence improved during the month amongst consumers, with the Consumer Sentiment Index reaching a record equalling high of 109 points.

It is only the second time the Index has reached this level since it began in November 2010 – the first time being in February of this year – and compares with an all-time low of 90 points seen in March 2011.

The improvement in April was largely driven by greater optimism towards the current situation, including views on the housing market, personal finances and the UK’s financial situation.

While there is some way to go, optimism towards the housing market grew in April with 28% stating that it is ‘excellent’, ‘very good’ or ‘somewhat good’ (24% in March), compared with 72% who believe it is ‘not good’ or ‘not at all good’ (76% in March). Pessimism towards the housing market has now deteriorated by eight percentage points since December 2012.

Meanwhile, spending on essential items continued to grow at a steady pace and broadly in line with inflation at 2.5%.

Within essential spending, annual growth on food and drink spend – the largest component within the essential spending category – fell to 3.4% from 4.5% in March. This is consistent with consumer research revealing that households spent on average £261 on groceries in April – down by £10 from £271 in March.

Around 57% of survey respondents state that they are now paying ‘more’ or ‘a lot more’ on groceries compared with 12 months ago, while over three quarters (77%) are particularly concerned about rising food prices going forward.

By comparison, annual spending growth on gas and electricity continued on an upwards trajectory in April, rising to 5.7% from 4.7% in March. Similarly, annual spending growth on water bills rose to 5.5% from 3.9% in March.

Patrick Foley, chief economist at Lloyds TSB, said: “It is good to see an improvement in consumer sentiment this month, particularly as it has largely been driven by consumers’ perceptions of their current personal finances, suggesting that the squeeze on household finances abated somewhat over recent months.

“However, we shouldn’t automatically expect the improvement in sentiment to translate into improved consumer spending, with reductions in some benefit payments, weak wage growth and slowing employment growth likely to be headwinds during 2013.”

Consumer concerns towards the UK’s financial situation receded in April, with the number of people saying it is ‘not at all good’ falling by four percentage points from 47% to 43%.

Negativity towards the economy is mainly being driven by those over the age of 35 years. People between 45 and 54 years of age in particular are the most downbeat, with 51% stating the economy is ‘not good at all’ compared with 32% of 18 to 24 year olds.

Consumer sentiment towards their own personal finances increased in April, with 53% stating they are ‘excellent’, ‘very good’ or ‘somewhat good’ (51% in March). 47% across the UK still feel their own financial situation is ‘not good’ or ‘not at all good’, although this has improved slightly from the previous month (49%).

The younger age groups continue to have the most positive outlook on their finances with 16% of 18 to 24 year olds stating they are ‘excellent’ or ‘very good’.

Meanwhile, sentiment regarding the employment market remains downbeat with 84% describing it as ‘not good’ or ‘not at all good’. This measure has remained broadly stable since the turn of the year.

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