Consumer spending power squeezed

Sarah Davidson

April 22, 2012

The report said a major factor behind the fall was weakening income growth which slowed to 2.4% in March compared to 3.0% in February.

Income was at its lowest rate since February 2011 and remains below inflation. At the same time essential spending rose by 6.2% in the year to March, its highest rate since the series began.

This was largely driven by an increase in food and drink, gas and electricity bills and spending on debt payments.

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However consumers also spent an extra 33% on vehicle fuel in the last week of the month compared to the week before in reaction to the threat of a fuel distribution strike and overall spending on fuel in March rose by 12% compared to February.

Patrick Foley, chief economist at Lloyds TSB, said: “Contrary to expectations at the start of the year the squeeze on consumers is not yet beginning to ease.

“Although overall inflation declined in the five months to March prices of essentials are rising at an increasing rate whilst at the same time growth in incomes has slowed.

“The pace of economic recovery is thus likely to remain very weak over the next few months at least with subsequent improvement dependent on a stabilisation in living costs and impetus for growth from outside the consumer sector, particularly exports.”

The failure of a lower rate of inflation to noticeably feed through into consumer spending power was reflected in consumers’ attitudes towards the cost of essentials and everyday spending.

Consumer research indicated that nearly three quarters of consumers noticed the cost of essentials and everyday spending increasing, while just 19% believe costs have stayed the same or decreased as inflation begins to creep back towards the government’s 2% target following last year’s highs.

Notably people saw an increase in spend on household groceries, gas/electricity and water rates with 57%, 67% and 45% respectively saying they were paying more now compared to the same time last year.

Around three in 10 people said they were spending a lot more on petrol and diesel compared to 12 months ago, while 64% said they had seen an increase to some degree.

The survey was conducted between 17-23 March and therefore fell before the rush to buy fuel in the last week of the month.

Of particular note was consumer spending on debt payments which grew by 1.3% over the year to March.

Following a series of monthly falls in this measure towards the end of 2011, it was now at its highest level since the series began.

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