Squeeze is on for nine million households

The latest Which? Quarterly Consumer Report reveals a mismatch between perception and reality as consumer confidence is on the rise, yet 1.5 million more families are feeling financially squeezed than a year ago.

A year on from the launch of the Which? Consumer Insight Tracker, we find a third of families (34%), 9 million households, are feeling squeezed, up from 7.5 million households in July 2012.

However, compared to last year, a higher proportion of people say the economy will get better in the next year (up from 16% last year to 24% this year), and a lower proportion describe the economy as poor (down from 76% to 66%). Consumers are also less likely to cut back on non-essential spending than they were a year ago, on big ticket household purchases, home improvements and holidays.

Yet, despite this increased consumer confidence, only a quarter of people (25%) expect their own personal financial situation to improve and three in 10 people (30%) continue to cut back on essential spending. The reality is that households are facing huge inflation on essentials, with food prices up by 4.3%, and gas and electricity bills up by around 8%. In the last year, two-thirds of the population (65%) have said that the economy is negatively impacting their personal finances.

The last month has also seen the biggest drop in consumer spending power following nine months of previous continuous growth. Overall spending power is down 0.9% year on year.

The combination of the increased confidence to spend with a decline in spending power means that people are relying more on savings or credit to get by. Our figures show that in the last year, on average, each month 6.1 million households dipped into savings to cover their monthly spending, 4.7 million households relied on their overdraft, and one million used an unauthorised overdraft.

Richard Lloyd, Which? executive director said:

“Consumers are looking on the bright side but millions more households are facing a prolonged squeeze on their finances. This implies they are getting used to the tougher financial climate or relying more heavily on savings or credit to get by.

“Consumers may be aiding our fragile economic recovery but using savings and getting into debt is not sustainable and more people are now feeling the squeeze. The Government must do more to keep spiralling housing, food and energy prices in check.”

On average over the last 12 months, each month:

• 7.8 million households cut back spending
• 3 million households needed to borrow money from family and friends
• 1.3 million households took out a new credit or store card
• 1 million households took out a payday loan.

The Which? Consumer Insight Tracker also finds:

• At the moment just 40% of people describe their finances as ‘good’.
• On average over the last year more than eight in 10 consumers have been worried about energy and fuel prices (78%) and seven in 10 (70%) worried about food prices.
• The 30-49 age group is most affected by the financial squeeze, while under 30s have seen the biggest decline in spending power.
• One in five people have no savings, as paying off debt is seen as a higher priority.

For further statistics and analysis from the last year, visit the Which? Consumer Insight Tracker

Notes to editors:

The next Which? Quarterly Consumer Report will be published on Tuesday 23 July 2013.

1. Primary Research Methodology: Populus, on behalf of Which?, interviewed 2055 UK adults online between 14^th and 16^th June 2013.  Data were weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.
2. 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 purchasing power for UK households. The Which? Spending Power Index is constructed as a measure of consumer purchasing power, calculated by deflating modelled nominal household incomes by household-specific price indices.
3. 28% of households, 7.5 million households, were feeling the impact of the financial squeeze in June 2012. This has increased to 34%, 9 million households, in June 2013.
4. Food and gas and electricity prices taken from analysis of Consumer Price Index data (May 2013).
5. Spending Power has declined 1.6% since January 2008, but for under 30 age group it has declined 4.8% (May 2013 figures)
6. Consumer spending on non-essentials:

Press Release: confidence, Consumer, insight, Personal Finance, report, squeeze, tracker