Record squeeze on family finances

23 April 2012

Family spending power is at its lowest level in a year after inflation fell 1.1% in March, according to a new study.

This yearly fall means families now have £113 less to spend on non-essential items, the Lloyds TSB Spending Power Report said.

Finances are also being squeezed because spending on essentials is now rising at its fastest rate since records began in June 2010.

It shot up by 6.2% in the past 12 months, mainly because of a hike in the price of food and drink and gas and electricity. A 12% hike in petrol prices during March after panic buying because of the threat of a fuel strike also contributed.

Families are also being hit as income growth has slowed to its lowest rate for a year and is now running below inflation at 2.4%.

Consumer squeeze

Inflation edged up to 3.5% in March on a monthly basis and despite falling for the previous five months the research indicates that this has not yet filtered through to consumers' pockets.

"Contrary to expectations at the start of the year, the squeeze on consumers is not yet beginning to ease," says Patrick Foley, chief economist at Lloyds TSB.

"The pace of economic recovery is thus likely to remain very weak over the next few months at least, with subsequent improvement dependent on a stabilisation in living costs and impetus for growth from outside the consumer sector, particularly exports," he adds.

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