Weak income growth puts pressure on consumers

Spending power for the average consumer has taken a hit over the past year, falling by almost £100 since last April.

According to new figures from Lloyds TSB, after inflation was taken into account, spending power continued its decline, dropping by 0.9 per cent in April.

The trend is being driven by subdued income growth, which has dropped to its weakest level since February 2011.

In fact, income growth in the year to April 2012 was just 2.2 per cent, far lower than the rate of inflation, which is nearer 3.5 per cent.

Disposable income is also being undermined by a rise in the cost of essentials – such as food, energy and fuel – which is making the dream of being debt free less likely.

Lloyds TSB has found that 86 per cent of the people it surveyed had noticed an increase in cost of these items during the past 12 months.

Once inflation has been taken into account, spending power has fallen by 0.9 per cent year-on-year.

Patrick Foley, chief economist at Lloyds TSB, said: "Household finances are still under real pressure despite the significant falls in inflation."

Jatin Patel, director of current accounts at the bank, 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."

She added that the reduction in disposable income is not as marked as it was at the beginning of 2011, but it was having a significant impact on consumer spending and would do for some time to come.

Pressure on disposable income could be the reason that many people are turning to credit cards and overdraft facilities between pay days.

According to MoneySupermarket.com, 25 per cent of consumers use their credit cards to make ends meet – not least because of the high cost of living.

Posted by Amy White