Spending power confidence returns to all time high as price pressures ease

23 February 2015

  • Confidence bounces back after Christmas to a record high of 154 in January 2015.
  • Essential spending growth continues to fall, with spending on gas and electricity (-7.6%) and fuel (-8.5%) seeing the greatest reductions.
  • Over half (56%) have cut back on spending since the start of January to recover from the Christmas period.

The latest Lloyds Bank Spending Power Report shows a positive swing in consumer confidence in January, taking the overall index up by four points to its highest level (154). [Chart 1].

Since the start of 2015, essential spend growth has continued to fall by a further 0.2% (to -0.9%), meaning people are spending almost 1% less on their essentials compared to this time last year. This fall is largely driven by declining gas and electricity (-7.6%) and automotive fuel (-8.5%), costs, while food and drink spending, which accounts for over 40% of total spending remained stable (+0.1%).

Spending less on essentials in January helped to improve consumer sentiment towards their current financial situation, which increased 12%points from December. Coupled with this, low levels of inflation[i] are helping to boost people’s spending power.

People also looked to cut unnecessary costs in the New Year to recover from the Christmas period. Well over half (56%) cut back on spending since the start of January. One in four (25%) used a cheaper supermarket, one in five (21%) used more voucher codes or discount websites, and one in ten (10%) sold more items on auction sites, possibly making the most of unwanted presents. [Table 2].

Claire Garrod, Head of Personal Current Accounts at Lloyds Bank, said: “We are becoming increasingly confident about the power of the pound in our pockets.  More people have disposable income than this time last year, we are spending less on essentials like electricity and fuel, and many of us are taking a proactive approach to money management early in 2015. This has all contributed to a rise in spending power for the first month of the year.”

Sentiment towards the current situation increased from December 2014, taking it to its highest ever level (200 index points). This is being driven by a number of factors. Net sentiment towards the country’s financial situation (+17% points), employment (+8% points), inflation (+29% points) and personal financial situations (+3% points) have all increased in January 2015 compared to the previous month.

Perceptions on discretionary income levels improved in January by 3% points to four in five (80%) of the UK population saying they had some discretionary income. Among people who have an income, there has been a year-on-year decrease of those saying that they have no discretionary income at all, with all of their household income going towards bills and essentials. This proportion now stands at 14%, compared to 18% in January 2014 and January 2013, and a fifth (20%) in January 2012.

There is a tendency to spend any spare money with consumers saying that on average they would spend 46% of any spare money they have left. On average, they would save 24% of spare money leftover and use 14% of the amount of money they have leftover to pay off debt.

Sentiment towards the future situation dropped three index points in January to 109, showing people are still relatively cautious about the future. Future discretionary income levels are expected to be relatively stable.

Whilst people are inclined to spend their spare money at the moment, future intentions lean towards saving. More people say they will save more compared to those who say they will save less. This balance of opinion is a net +8 for future saving, -4 for future spending and +1 for paying off debt.

One in five (20%) people think they will have more money in six months time. 39% of these people are planning to spend that extra money left over, 30% said they will pay off debt and 71% said they will save.

Patrick Foley, Chief Economist at Lloyds Bank, said: “An easing in price pressures for fuel and utilities, and a more positive view of employment conditions, have produced an upbeat mood among households at the start of the year. While some caution remains around future income prospects, with inflationary pressures likely to remain in check, and some pick up in pay growth now emerging, households should continue to feel better off through 2015.”

Across the UK, spending power confidence varies greatly depending on the region people live in. Those in London (where the overall spending power index stands at 171) are the most confident coming into 2015, 17 index points above the UK overall average, while Northern Ireland is the least confident (126 index points).

[i] In January 2015 the UK recorded the lowest annual rate of CPI (Consumer Prices Index) inflation on record (0.3%) (ONS figures).

Ipsos MORI survey conducted on behalf of Lloyds Bank. Ipsos MORI interviewed a representative sample of 2,070 adults who hold a bank account aged 18-75 across the United Kingdom. Interviews were conducted online between 22nd and 29th January 2015. Survey data are weighted to the known population proportions of this audience.