Lloyds Bank

Spending Power Report - Consumer confidence back on the up

18 August 2014

  • Overall Consumer confidence resumes climb following last month’s pause for breath
  • Essential spend has decreased for the first time in the report’s history
  • Consumer sentiment in the UK’s economic situation becomes more balanced, dropping for a second month in a row

The Lloyds Bank Spending Power Report for July shows that overall consumer confidence has picked up to reach a new high of 147 points after taking a slight dip in June.

Overall the improving consumer confidence tallies with easing pressure from spending on essentials.  Overall essential spending fell by around 0.5% on a year ago, the first decrease in the history of the Spending Power Report. This was driven by further falls in gas and electricity, food and drink and fuel. Food and drink makes up around 40% of essential spend and relative to last month spending growth slowed by around 2.5 percentage points. This could be attributed to exaggerated 2013 sales due to strong spending following the sporting successes in the summer of 2013. The reduced pressure from essential spending could provide consumers with more wiggle room for spending on non-essential items.

July also saw its second consecutive drop in the UK’s economic situation, down to 274 points from May’s high of 285 points, with feelings in the North of England tending to be the least positive. However overall sentiment towards the UK economic situation was still 33 points higher than this time last year.

Patrick Foley, Chief Economist at Lloyds Bank, said:

“July’s welcome recovery in sentiment comes against a backdrop of continued good news on the economy, most visible in the positive employment outlook.  However, with official data pointing to continued weakness in wage growth, the easing pressure on household budgets from spending on essentials provides an important support for consumers to undertake discretionary purchases.”

Current situation

Overall, confidence in the current situation continued a seven month unbroken rise, reaching 181 points. Consumers also continued to maintain a positive view towards their personal financial situation with a four point improvement compared to this time last year. However, there is no longer a positive opinion throughout the UK as Wales dropped into a negative balance of -6%.

Feelings towards the UK housing market remain stable at -12% in July, after a drop of 8 points between May and June. Compared to this time last year the balance of opinion is signficantly higher (+20%). Overall, 55-64 year olds are the most negative towards the housing market.

Overall consumers feel they have more money left in their back pocket after paying bills (up from -26% to -20%) although the balance of opinion remains negative.

Consistent with figures published last week, showing that UK unemployment is at its lowest level for nearly six years, July also saw a continued one point gain in feelings towards the country’s employment situation, now standing at -25%, and up by a notable 39 points compared to the same time last year. Overall men are more positive than women around their employment situation with men at -7% and women at -40%. Sentiment around consumers job security also improved in July, to a net balance of +56%, a 7 point improvement from a year ago.

Philip Robinson, Director of Personal Current Accounts at Lloyds Bank said:

“With consumer confidence resuming its steady increase to a new high, and discretionary income improving as essential spend falls, more people are feeling more comfortable about their own finances. It’s not a bad time to make sure we’re all putting enough away for a rainy day or starting to get ready for a rise in interest rates.”

Future situation

Consumers feel more confident about the future with a two point gain in the overall index to 114 points. Net balance of sentiment towards future spending is stable at -2%, with 60% of respondents feeling that there will be no change.

Similar to current feelings towards current discretionary income, future opinion has increased to 5% from 0%, with the proportion of those feeling they will spend less decreasing by 3% and those feeling they will spend more by 2%. Men remain the most positive with an increase to 12% (from 5% in June), while women had a negative view standing at -2%. The East Midlands saw the largest increase in attitude towards future savings moving to 12% from -3% in June. The North East was the only area in negative balance with -6%, although generally attitudes towards savings remained consistent at 9% for July (down from 10% in June).

-Ends-

Notes to Editors:

The Lloyds Bank Spending Power Report is derived from independent consumer research and current account data of Lloyds Bank, Halifax and Bank of Scotland customers.  This provides a robust and representative sample of the entire UK market and its essential spending behaviours.

Each month, over 2,000 consumers are asked about their current and future spending habits and how their commitments affect their spending power1.  Essential spending components are made up of rent, mortgage and required debt payments, utility bills, council tax, TV licences, food and fuel, which are identifiable from card spending, direct debits and standing orders.  There are strong calendar effects within essential spending components, some of which will be accounted for using year-on-year growth rates while we attempt to adjust for irregular calendar effects. As a longer history of data becomes available, the adjustment methodology may be altered in future to better correct some of these changes. [i] Consumer research is compiled in conjunction with TNS Financial and Professional Services.  A total of 2,297 UK consumers were questioned.  Interviews took place via an online survey between 10 – 16 June 2014.

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