Spending power ‘still being squeezed’

Consumers are still seeing their spending power squeezed when it comes for paying for the essentials, despite some of these cost falling.

A study by Lloyds TSB has revealed the amount of discretionary spending power consumers dropped by 0.3 per cent in May this year, with people having £34 a month less to spend on essentials than a year ago.

However, the squeeze was not as great as it has been in previous months, with some costs falling significantly.

In particular, motorists have gained from a recent dip in fuel costs, keeping the rise in automotive fuel spending down to 5.1 per cent over the last year.

Overall, essential spending costs in the year to May rose by 3.9 per cent, above the official Consumer Prices Index rate but less than April's 4.6 per cent figure.

Chief economist at the bank Paul Foley remarked: "Weak income growth and stubbornly high inflation is ensuring that the squeeze on consumers is remaining in place longer than many thought it would.

"Growth in spending on essentials is now showing signs of moderating which is positive. But the weakness in income growth is severely limiting the benefits for consumers."

With matters improving, now many be a good time for consumers to make sure they do not add to any debt they have by using debt consolidation measures to reduce monthly repayments, while planning their budgets well to ensure they stay on an even keel and make the most of the improving situation.

People who have got into financial trouble have found they can get back on an even keel -but the hardest step can be the initial admission that there is a problem to be tackled. 

In its latest Quarterly Inflation Report – published last month – the Bank of England predicted that CPI inflation will fall further in the months ahead, but is likely to stay above the two per cent target for the next 12 months.

By Joe White