New Which? research finds consumers are reluctant to spend and are cutting back on essentials despite an increase in their spending power.
The bleak findings, to be published in the second Which? Quarterly Consumer Report this week, show that 6.6 million households curbed their spending on essentials in September, 4.8 million households used their savings to pay for essentials, and 2.4 million households borrowed money from family or friends.
That’s despite the Which? Spending Power Index showing an increase of 0.8% year-on-year as incomes outstripped inflation in five of the last six months. While disposable incomes have risen, consumers remain worried about rising prices, with fuel, energy and food prices the top household financial worries.
The new research also reveals that:
> One in three people (34%) tended to have no money left at the end of the month and those who did were more likely to save it or use it to pay off debt than spend it.
> 43% of people borrowed money or took out additional debt in the last month.
> 800,000 households took out a pay day loan.
> Four in 10 said they planned to cut back on food costs and about half said they were likely to cut back on clothes (54%), home improvements (49%), holidays (51%) and big ticket items (53%).
> 43% of people are finding it difficult to cope on their current income.
> Two-thirds of people are worried about future tax levels and 60% are worried about public spending cuts.
> Two-thirds of people remain concerned that the recession is having a negative impact on their finances.
> Three-quarters of people (73%) still rate theUKeconomy as poor.
Which? executive director Richard Lloyd said:
“With household incomes already stretched to breaking point and rising fuel, energy and food prices adding to the strain, it’s no surprise that millions are having to cut back spending on essentials and alarming numbers of people are taking on extra debt just to make ends meet.
“Consumer confidence is at rock bottom. The Government and businesses must give consumers confidence that everything possible is being done to keep prices in check and give people value for money if we are to see the consumer spending recovery that is so essential to the nation’s economic well-being.”
Notes to editors:
1. Economic forecasting group, Ernst & Young’s ITEM Club, predicted on15 October 2012, that recent trends of falling inflation and rising employment levels would boost consumer demand and help theUK economy grow by 1.2% next year.
2. The Which? Quarterly Consumer Report: will be published on Tuesday 23 October. It is the second report in a series monitoring how people feel about their current financial situation. It includes the Which? Spending Power Index which tracks month on month changes in consumer purchasing power.
3. Primary research methodology: Populus, on behalf of Which?, interviewed 2,119UK adults online between 14 and16 September 2012. Data were weighted to be demographically representative of allUK adults. Populus is a member of the British Polling Council and abides by its rules.
4. Which? Spending Power Index methodology: Which? and the Centre for Economics and Business Research (CEBR) examined the macroeconomic trends in the British economy and created the Which? Spending Power Index measuring monthly spending power for UK households. The Which? Spending Power Index is constructed as a measure of consumer buying power, calculated by deflating modelled nominal household incomes by household-specific price indices. More information at www.cebr.com