Consumers are surviving on £400 a year less than they were in 2011, a new report from Lloyds TSB has revealed.
In its annual Spending Power Report, the state-owned bank found that the amount that you have to spend on non-essential items had fallen by 4% on 2011. The bank estimates that this equates to almost £34 a month.
Patrick Foley, chief economist at Lloyds TSB, said: ‘Weak income growth and stubbornly high inflation is ensuring that the squeeze on consumers is remaining in place longer than many thought it would.’
Inflation eases are helping consumers
Although the current level remains high, recent falls in inflation seem to be having some effect, with growth in essential spending dropping to 3.9% from 4.6% in April.
Inflation, measured by the consumer prices index (CPI), fell from 3.5% in March 2012 to 3% in April 2012. However, the fall in the retail prices index (RPI), a measure of inflation that includes mortgage interest payments, slowed in the last measurable month, from 3.6% to 3.5% in April 2012.
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Spending on essentials falls dramatically
Annual spending on vehicle fuel showed the most dramatic decline, reaching its lowest level in two years (5.1%), while spending on water bills and debt payments also saw a fall in annual growth.
Household finances in general showed some signs of improvement in May, with 54% of people saying that they live comfortably or meet their outgoings with some left over each month.
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Lack of optimism among consumers
Despite a fall in the cost of essentials, consumers are not feeling more positive about their financial future, with a greater proportion of people feeling that they will have less to spend in six months time (25%) than more (20%).
Concerns over financial security seem to have had an impact on consumer attitudes towards saving. In May, 59% of people surveyed said they would be likely to save any money left over at the end of the month compared with 56% in April.
The report found that people aged 35-54 were more likely to say they do not have enough money to meet monthly outgoings, while those aged 24 or under are least likely to feel financially restricted.