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Consumer spending power declines by 0.9 per cent

Britons had £100 a year less to spend on non-essential items, according to Lloyds TSB.

Despite recent falls in inflation, UK consumer spending power declined by 0.9 per cent in April due to weak income growth, according to a new report from Lloyds TSB.

On average, this decline equates to £100 less a year to spend on non-essential items.

Real incomes fell by 1.6 per cent in April as earnings before inflation grew at their slowest pace since February 2011 (2.2 per cent).

Spending on essential items continues to grow at a fast pace, with annual growth at 4.6 per cent in April.

In the online survey of 2,380 consumers, conducted between 24 and 30 April, 11.7 per cent reported a rise in spending on both gas and electricity; 9.1 per cent also reported a rise in water bills. However, these were offset by falls in the growth in spending on food (6.8 per cent) and fuel (6.8 per cent).

Some 86 per cent of consumers have noticed the cost of essential items and everyday spending increase over the past 12 months. This compares to 73 per cent in March, indicating that a growing number of people are feeling a noticeable effect from rising prices on their pockets.

Patrick Foley, chief economist at Lloyds TSB, said:

Household finances are still under real pressure despite the significant falls in inflation we have seen over the past seven months. Although unemployment has been broadly stable, wage growth has eased and so incomes are growing well below their long-term average.

Even though we expect to see further falls in inflation, the weakness in the broader economy is likely to mean that consumers aren’t going to feel any better off in the near future.

The proportion of consumers who think that the UK’s level of inflation is "not at all good" spiked by 6 percentage points to 34 per cent between March and April. In particular, rises in food and clothing prices were cited as causing concern. However, consumer spending on food and drink declined from 7.5 per cent in March to 6.8 per cent in April.

Meanwhile, 37 per cent of consumers feel that they are spending a lot more on petrol and diesel compared to the same time last year, while 67 per cent have seen an increase in their spending to some degree. This compares to 64 per cent who stated that they had felt an increase to some degree in the 12 months to March.

Between 18 and 19 per cent of consumers stated that they have been spending all of their income on household bills and essentials since January 2012. While this figure has remained fairly constant, the proportion saying they spend around three-quarters of their income increased from 45 per cent in March to 48 per cent in April.

Jatin Patel, director of current accounts for Lloyds TSB, said:

There was little respite for consumers in April and it is clear that a growing number are feeling concerned about the state of the UK’s economic situation. This will not have been aided by news suggesting that the UK has entered into a double dip recession, while continued weak income growth and rising prices act as a very tangible drag on sentiment. While spending power is not being eroded at quite the same pace as the beginning of last year, events in the global economy will likely have a significant bearing on consumer spending power in the months ahead.