A new report published by Lloyds TSB indicates that household spending power grew at its weakest rate since April 2011.
Lloyds TSB spending report for September suggests that although family incomes increased by 1.7 per cent, this has been offset by increases in household bills that will leave the average family £8 worse off per month than they were a year ago.
Taking into account inflation, this means that real term annual increase growth fell by 1.2 per cent. The decrease means that on average people had £100 less per year to spend on non-essential items.
The figures reverse the gains seen in August and help to explain the difference between Lloyds TSB’s report and one out today by the Office for National Statistics (ONS) that looks at figures for the last quarter.
The report contradicts data published today by the Office for National Statistics (ONS) that says real household income per head increased by £69 or 1.6 per cent in the second quarter of 2012, reaching its highest level since the fourth quarter of 2010.
The Lloyds TSB report says that increases in gas and electricity bills and higher spending on essential items, which rose by 3.3 per cent year-on-year means that the squeeze on household spending is set to continue.
However, the report suggests these figures could be volatile because the Olympics and the wet summer weather could have skewed the figures.
Lloyds TSB says the situation is likely to get worse as the big energy companies announce price rises in time for the heavy winter energy usage. Scottish Power, npower and British Gas have already announced price increases.
The cost of food is also set to increase after a drought in the United States affects wheat and grain production which will result in higher food prices for essential items.
Last week, the Bank of England reported that despite its Funding for Lending Scheme that was supposed to lead to lower mortgage costs, these are increasing.
Patrick Foley, chief economist at Lloyds TSB, said: “I expect inflation to fall only slightly further over the coming months so any improvement in the situation will need to be driven by growth in incomes and this will depend on the wider economy.
“The pattern of consumers following rather than driving economic developments appears set to continue.”
The percentage of people who believe their financial situation will improve in the next six months fell to 45 per cent, though this is still up four per cent on 12 months ago. Looking forward, overall people are slightly more optimistic about their finances but a higher proportion still believe they will be worse off in six months time than they are now.
The report surveys payments made into Lloyds TSB current accounts and takes off essential spending on regular payments such as mortgages, rent and utility bills to work out what money is left over.
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