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Ease for consumers as spending power grows

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Cash strapped consumers will welcome news that spending power grew to 2.2% last month, which equates to an extra £245 in consumers' pockets each year.

Spending power growth hit a new high in August, the fourth consecutive month the index has remained in positive territory.

According to Lloyds TSB, this is an indication that despite an increase in inflation during July, its sustained lower rate is helping to ease conditions for consumers.

Jatin Patel, director of current accounts for Lloyds TSB, said: “This will be welcome news for households where budgets have been squeezed for some time.

“However, it is too early to say whether this is a sign of a longer term shift and consumers will likely remain cautious until we see a more sustained economic recovery.”

Lloyds highlight that this is the fastest rate of growth seen post inflation since the index began in June 2010.

The increase means that once essential items had been paid for people had around £245 more than a year ago to spend on non-essential items.

Positive employment figures in recent months may be providing a welcome boost for consumers, with the increase in payroll income seen in August appearing to have had a significant effect on year-on-year growth.

Patrick Foley, chief economist at Lloyds TSB, said: “Although the volatility in households’ monthly income means we shouldn’t read too much into one month’s figures, the trend of improving income growth and the fourth month of rising real spending power suggest that the squeeze on consumers of the past couple of years is finally coming to an end.

“Barring renewed turmoil from the international environment this is a key building block for an improving economic recovery over the coming year.”

Official figures released today show inflation fell back in August following a gentle uptick in July.

While this figure will not have been captured within the field dates for August’s consumer research (14-20 August), the increase to inflation reported for July may have had some bearing on sentiment this month with consumers showing that they are feeling more negative towards the current situation.

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