23rd August 2013
Sentiment towards the UK’s economic environment has hit a new peak driven chiefly by growing optimism in the housing market writes Philip Scott.
But better job figures, higher consumer spending, and the fact the economy expanded by 0.6 per cent in the three months to the end of June, double the previous quarter have all helped bolster the improved outlook.
According to the latest Lloyds TSB Spending Power Report confidence continued to build on recent monthly gains to reach its highest level on record, since November 2010, at 114 points.
Overall confidence is now 9 points higher than at the start of the year, 105 in January 2013, and 10 points higher than the same time last year.
Consumer confidence in the UK’s economic situation has improved again, with optimism continuing to strengthen month on month. Similarly, worries over the employment situation and housing market are still receding, with both measures significantly more positive than this time last year.
But pockets of pressure on consumers spending remain, however. Gas and electricity spending continues to grow rapidly, at more than 8 per cent on a year ago, likely reflecting past price increases feeding through to bills, and automotive fuel spending accelerated to around 3½ per cent on a year ago. But an increase in overall spending on essential categories to around 3½ per cent – the highest since June 2012 – also reflects an increase in spending on food and drinks.
Such spending on food and drink, supported in July by favourable weather, has likely been discretionary at least in part, and potentially indicated not greater pressure on consumers, but greater confidence and willingness to spend on higher value items or higher quantities.
Patrick Foley, chief economist at Lloyds TSB, says: “The further improvements in consumer sentiment this month are very encouraging but not surprising given the combination of better than expected economic data and stable growth of spending on essentials. In due course consumer sentiment may translate into firmer consumer spending and help underpin the wider recovery. If it does, this should eventually help to improve the outlook for the jobs market, which might then further reinforce sentiment.”
The majority of consumers remain concerned about the state of the UK’s financial situation; however a total of 16 per cent expressed a positive outlook in July, up from 13 per cent in June and 11 per cent at the beginning of the year. Those most likely to remain pessimistic are aged 55-64 with 46 per cent saying they do not feel good about the financial situation at all.
While still high, negative feelings towards the employment situation continue to recede, with 82 per cent of the UK expressing a negative outlook. Just 18 per cent expressed a positive outlook – although this is up from 17 per cent in June and 11 per cent in July last year. Optimism is currently strongest among 25-34 year olds, with 21 per cent saying it was somewhat good.
The number of consumers with a positive view of the housing market continues the upward trend seen to date in 2013 and has reached a historical peak at 34 per cent compared to 31 per cent in June and 23 per cent in January and 22 per cent in July 2012.
Consumer sentiment towards their own personal finances remained steady with 46 per cent saying they held a negative viewpoint compared to 45 per cent in June. However, this has still improved from July 2012 when 50 per cent held a negative view of their personal finances. Those aged 45-54 remain the most negative with 55 per cent expressing a negative view. This optimism has pushed the percentage of consumers who said they would save more if they had money left over at the end of the month to 68 per cent, and the percentage who said they would put more towards debt repayment hit 35 per cent – the highest levels since the study began.