New Which? research reveals a mismatch between perception and reality as consumer confidence is on the rise – yet 1.5 million more families are feeling financially squeezed than a year ago.
The latest Which? Quarterly Consumer Reports published today finds a third of families, nine million household are feeling financially squeezed, up from 7.5 million households in July 2012.
However consumer perception of the economy is improving. Compared to last year, a higher proportion of people say the economy will get better in the next year (up from 16% last year to 24% this year), and a lower proportion describe the economy as poor (down from 76% to 66%).
Only 25% of consumers expect their financial situation to improve
Despite the increase in consumer confidence, the Which? Consumer Insight Tracker found only a quarter of people expect their own personal financial situation to improve, while three in 10 people continue to cut back on essential spending.
The findings reflect that many households are facing huge inflation on essentials, with food prices up by 4.3%, and gas and electricity bills up by around 8%. In the last year, two-thirds of the population (65%) have said that the economy is negatively impacting their personal finances.
The last month has also seen the biggest drop in consumer spending power following nine months of previous continuous growth. Overall spending power is down 0.9% year on year.
However, results show consumers are also less likely to cut back on non-essential spending than they were a year ago, such as big ticket household purchases, home improvements and holidays.
|Likelihood to cut back spending|
|June 2012||June 2013|
|Big ticket household purchases||57%||50%|
Many households relying on savings and credit to get by
Although their is an increased confidence among consumers to spend, our results indicate there is also a decline in spending power, which means that people are relying on savings and credit to get by.
Our figures show that in the last year, on average, each month 6.1 million households dipped into savings to cover their monthly spending, 4.7 million households relied on their overdraft, and one million used an unauthorised overdraft. The Which? Consumer Insight Tracker, also found one in five people have no savings, as paying off debt is seen as a higher priority.
On average over the last 12 months, each month:
- 7.8m households cut back spending
- 3m households needed to borrow money from family and friends
- 1.3m households took out a new credit or store card
- 1m households took out a payday loan.
Government must do more to keep housing, food and energy prices in check
Richard Lloyd, executive director at Which?, said: ‘Consumers are looking on the bright side but millions more households are facing a prolonged squeeze on their finances. This implies they are getting used to the tougher financial climate or relying more heavily on savings or credit to get by.
‘Consumers may be aiding our fragile economic recovery but using savings and getting into debt is not sustainable and more people are now feeling the squeeze. The government must do more to keep spiralling housing, food and energy prices in check.’
For further statistics and analysis from the last year, visit the Which? Consumer Insight Tracker.