British families ‘£34 a month worse off’ as budget squeeze keeps biting

Families are about £34 a month worse off than they were a year ago, as the squeeze on people’s budgets continues, a study has found.

High inflation, which has pushed up the cost of essentials, has been easing, but weak income growth will “severely limit” any benefits to be felt by consumers until the economy grows more strongly, the Lloyds TSB Spending Power report found.

A 0.3 per cent decline in spending power after inflation meant that households had around £34 less to spend on non-essential items in May compared with the same month in 2011.

Eight out of 10 people surveyed believe the rate of inflation is not good, despite growth in spending on essentials falling back to 3.9 per cent, from 4.6 per cent in April.

Annual growth in spending on vehicle fuel slowed to 5.1 per cent, the lowest rate since the index began in January 2010, while debt payments and water bills also saw notable declines in annual growth, the study said.

Patrick Foley, chief economist at Lloyds TSB, said: “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.

“I would expect the benefits of falling inflation on consumers’ spending power will be limited until we also see a stronger economy and faster growth in incomes.”

Household finances showed some general improvement in May, with 54 per cent of people surveyed saying that they live comfortably or meet their outgoings with some left over each month, a rise of six percentage points since April.

The proportion of people who said they do not have enough to meet monthly outgoings fell by two percentage points to 7 per cent.

People aged between 35 and 54 were more likely to say they do not have enough money to meet monthly outgoings, while those aged 24 or under were found to be least likely to feel financially restricted.

Some 63 per cent of consumers said they spend at least three quarters of their monthly income on household bills and essentials, a decrease of three percentage points from April.

Meanwhile, 59 per cent of those surveyed said they would be likely to save any leftover money compared with 56 per cent in April, with the need for financial security given as the main reason for this.

The report, which surveyed more than 2,000 people, defines spending power as income left over after spending on essentials such as rent and mortgage payments and other regular bills.

Inflation fell to its lowest level in more than two years last month thanks to store discounts designed to lure shoppers back to the high street.

The Consumer Price Index rate of inflation fell to 3 per cent in April, compared with 3.5 per cent in March.