Weak inflation helps to boost family finances

Households have more spending power than at any time in the past four and a half years, with less pressure on essential spending and especially energy bills.

Lloyds Bank’s latest barometer of consumer confidence reached 146 in May, according to research released this morning, well above the 100 level set in January 2010.

The index was helped particularly by low inflation, and the muted price growth of essential items. Though wage growth is still sluggish, Lloyds say essential spending is only 0.5 per cent higher than it was one year ago, and the average energy bill is down by 0.5 per cent from May 2013.

“Although wage rises still remain subdued, limited pressure on consumer wallets from spending on essentials bodes well for growth in discretionary spending in the months to come,” said the bank’s chief economist, Patrick Foley.

When broken down, consumers’ sentiment towards the UK’s financial situation, the country’s employment situation and their own personal finances all improved in May.

Six per cent more people responding to the survey also think their discretionary income will be better rather than worse in half a year, up by 12 percentage points from the same month last year.

“Positivity towards peoples’ finances is helping to have an impact on consumer confidence. The recent fall in food prices together with inflation figures are really helping to drive this sentiment,” added Lloyds’ Philip Robinson.

Food and non-alcoholic beverage prices fell by 0.6 per cent in the year to May, according to the Office for National Statistics. The drop is the steepest recorded by the institution for nearly a decade.

In fact, analysts from Capital Economics believe that with a strong pound, inflation could fall to as low as one per cent by the end of the year, and remain muted in 2015, staying below the Bank of England’s official two per cent target.

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