The latest Lloyds Bank Spending Power Report has revealed a further boost to consumer confidence in the run up to Christmas, as attitudes towards current and future financial and employment situations improve.
Building on gains made last month, the overall Spending Power Index rose by 3 points in November, to stand at 161.
With unemployment at its lowest level since 2006(1), and signs of improved wage growth(2), those surveyed say they are feeling more optimistic about the current situation, with this index up 5 points to 210. The increase was driven by improved sentiment towards personal financial situation (+6pp) at +31%, and household financial situation, which climbed significantly (+9pp) to an all-time high of +26%.
Patrick Foley, chief economist at Lloyds Bank, said: “Spending power confidence rose further in November, lifted by a more upbeat assessment of current circumstances, and a greater sense of optimism around the outlook.”
“With price pressures for essentials still subdued, and some improvement in wage growth becoming evident, households are continuing to feel better about their personal financial situation, particularly those who say money is tight. This bodes well for the UK’s solid pace of economic recovery being sustained in 2016.”
While renters’ sentiment towards their current situation remains worse than that of homeowners, the gap has narrowed across all measures. There were marked improvements for renters in attitudes towards personal financial situation (+8pp), employment situation (+7pp) and current levels of inflation (+7pp).
November also saw an increase in the Future Situation Index, up 2 points to stand at 112, its highest point of the year. This was driven by a marginal increase in those who think they will have ‘more’ or ‘much more’ future disposable income in six months’ time (standing at 24%, up from 22% in October) and supported by stability towards own job security (unchanged at +57%).
There has also been a marginal increase in those planning to pay off ‘more’ or ‘much more’ debt in the next six months, now at 18%, the highest figure this year. Those planning to save ‘more’ or ‘a lot more’ over the same period continues to rise slightly, up to 24% in November, from 23% in October.
Lloyds Banking Group economic data shows year-on-year spending on essentials fell for the 12th consecutive month. Spending in November was 1.6% lower than at the same time last year (in October spend was down 1.0% on 12 months previously). This is a record low for the spending growth rate.
The deflationary rate remains largely driven by the continued the fall in fuel prices, with actual spend here declining at a rapid rate year-on-year (-9.3%) as prices at the pump drop further.
Lloyds said the more significant decline in the overall spending growth rate in November can, in part, be attributed to a decrease in actual food spend, which accounts for 40% of all essential spend. This was down 0.6% year-on-year, compared to +0.3% last month.