Consumer confidence increased towards the end of 2015, driven by an improved attitude towards the current employment situation, according to the latest Lloyds Bank Spending Power Report.
With sentiment towards the future situations remaining stable, the overall Spending Power Index rose by three points in December, to stand at 164.
Those surveyed said they are feeling more optimistic about the current situation, with this index up six points to 216, the third consecutive monthly increase. This is due to the influence of a 7pp increase in sentiment towards Britain’s employment situation. The increase coincides with recent ONS figures which show the unemployment rate has fallen to 5.1%, its lowest level since 2005.
Despite the positivity regarding jobs, sentiment towards people’s personal financial situation has experienced a significant decrease, dropping by 7pp to stand at +24 in December. This is reinforced by ONS figures showing pay growth now at a nine-month low. The proportion of people with disposable income has also decreased significantly since November, dropping 3pp to stand at 80% in December, falling back to the same level as September. However, this is still 3% higher than in December 2014.
Patrick Foley, chief economist at Lloyds Bank, said: “Spending power confidence strengthened in December, driven by an improvement in households’ view of the employment situation, particularly among those who say money is tight. With the pace of job creation having picked up recently, and inflationary pressures still muted, the outlook for consumer spending remains generally positive. This suggests domestic economic growth should continue to underpin the UK recovery despite a more uncertain global environment.”
There has been an indicative shift within the young singles segment towards spending their disposable income (+9pp) rather than paying off debt (-7pp), backed up by a 10pp increase in their personal financial situation (+31). This means young singles have now overtaken both families with children (+20) and empty nesters (+28) on positivity towards their personal financial situation.
Though homeowners remain more positive about most aspects of the current situation when compared to renters, their sentiment towards their personal financial situation has declined significantly since November, falling 9pp to +39 in December. This is still much more positive than renters, whose sentiment stands at -2. However, renters have overtaken homeowners in regards to own job security, with renters standing at +57 and homeowners dropping to +53.
The Future Situation Index remains stable at 112, due to a slight improvement in sentiment towards future disposable income – 54% still feel that they will have the same amount in six months’ time – counterbalancing a drop in sentiment towards own job security (down 3 pp).
Young singles (26%) and families with kids (18%) are significantly more likely to expect to spend more or much more in the next six months compared to empty nesters (11%). Young singles (50%) are also more likely to expect to save more or much more in the future compared to families with kids (30%) and empty nesters (14%).
In comparison to December 2014, there has been a significant increase in the proportion of people who feel they will be paying off somewhat or much less debt in six months’ time, rising from 9% to stand at 13% in December 2015. The proportion of people saying they will pay off more or somewhat more debt ended the year at 18%, up 1% since December 2014.
Lloyds Banking Group economic data shows year-on-year spending on essentials continued to decline, with spending in December 1.6% lower than at the same time last year. This deflationary rate continues to be influenced by falling fuel prices, with actual spend dropping by 8.6% year-on-year.
This is reflected in the findings of the consumer research, where current spend vs. a year ago on petrol/diesel significantly decreased in December, dropping 9pp since November.
Actual food spend in December was down 0.9% year-on-year, compared to -0.6% last month. As with previous months, food continues to be the major driver of the low spending growth rate, accounting for 40% of all essential spend.
Again this is reflected in the consumer research, with a slight decrease in the proportion of people who think they are spending more or a lot more vs. a year ago on groceries, from 33% in November to 31% in December. Meanwhile the proportion of people saying they are paying less or a lot less on groceries increased by 1% in December, to stand at 11%.