Unemployment main threat to improving confidence

BRITISH consumers saw a slight increase in their spending power in December, indicating finances could improve in the coming months, a report said today.

Lloyds TSB said consumers’ discretionary spending power, defined as the cash left over after spending on essentials has been deducted, saw a 0.4 per cent increase in December, equating to £4 a month, when compared with a year earlier.

Researchers cautioned that the growth remains below the level expected in a stronger economic environment and spending on essentials is growing at its fastest pace for more than 18 months, reaching a high of 4.6 per cent annual growth in December.

The increased cost of utilities was given as the main reason for the growth, with spending on gas and electricity showing an annual increase of 9.2 per cent. Water bills went up by 12.9 per cent.

Debt repayments also increased slightly in December, removing a source of support to consumers, the report said.

Patrick Foley, chief economist at Lloyds TSB, said: “Discretionary spending power remains under pressure from higher utility bills and anaemic income growth.

“However, with inflation set to fall through much of 2012, exemplified by recent gas price reductions, we could see an improvement in consumers’ financial position over the next few months.

“The main risk to this improving picture is the extent to which unemployment rises over the coming months because it dents confidence.”