26th February 2016
Spending power has decreased as Britons worry about employment and their financial situation.
The latest Lloyds Bank Spending Power report shows spending power decreased in January, with the overall index down four points to 160, back to the level seen in November 2015. This is the first fall in the overall index recorded since September last year.
The fall has been fuelled by respondents feeling less optimistic about the current situation, driven by weakened sentiment towards Britain’s employment situation.
However, those surveyed did report a modest increase in their personal financial situation, up two points to reach +26, but this is still below highs seen last summer when the index stood at +31.
Looking into the future, people did not feel their situation would improve. The Future Situation Index dropped three points to 109 due to a significant decrease in the number of people who feel they will have ‘more’ or ‘much more’ disposable income in six months’ time – this dropped from 24% in December to 19% in January.
The findings align with figures from the Office of National Statistics that showed while unemployment has remained unchanged at 5.1%, wage growth has slowed and increases by just 1.9% year-on-year.
Patrick Foley, chief economist at Lloyds Bank, said: ‘On balance, households remain in relatively good spirits, with reduced pressure on budgets from essential expenditure continuing to support sentiment.
‘Nevertheless, a little more caution appears to have crept into consumers’ assessment of the outlook, with prospects for discretionary income and spending dimming somewhat. A confident view of job security continues to prevail, however, providing reassurance that the recovery remains on a solid footing.’
A number of people have taken steps to rein in their spending since the start of the year.
A total of 65% of 18-to-24 year olds say they have cut back, up from 49% in January. This contrasts with just 29% of over-65s.
Of those surveyed, 44% have cut back on eating at restaurants and having takeaways and 30% have reduced spending on clothes or personal care items.
On average, those surveyed have cut back their spending by up to £29 a week, with only 3% cutting back by 3% or more.
Robin Bulloch, managing director of Lloyds Bank, said: ‘While levels of disposable income have remained stable, it’s notable that a significant number of people have been tightening the purse strings and making changes to their lifestyle. Careful management of personal finances has never been more important, and it’s the younger generation that’s leading the way in terms of adjusting their spending habits.’