Household spending outpaces income growth

Household spending increased more rapidly than income growth in the last financial year (2016-17), with the biggest rises taking place among lower-income households, the Resolution Foundation said in response to the latest ONS Family Spending figures.

The ONS figures show that households increased their spending by 4 percent in 2016-17, helped by low inflation and rising employment. Household incomes grew by 2.3 percent over the same period, leading to lower savings and higher levels of household debt.

Lower-income households (in the bottom half of the income distribution) increased their spending by 7 percent, far more than the 1 percent increase across the richest half of households.

The Foundation notes that this data covers the year from April 2016 to March 2017. More recent, but less detailed, data has shown that consumer spending has slowed as household incomes have been squeezed.

Stephen Clarke, Policy Analyst at the Resolution Foundation, said “Today’s figures confirm that families largely shrugged off any immediate post-EU referendum jitters and went spending. This extra spending outpaced the extra level of income available to households, who turned instead to their savings and credit cards.”

“More recently, rising prices and squeezed incomes have put the brakes on Britain’s big spending households.”

Gary Childs, head of analytics, atCallcredit Information Group, said “The latest ONS statistics around retail sales for December 2017 show slight growth compared to December 2016, with the quantity bought increasing by 1.4%, despite inflation rates creating a challenging environment for consumers. A continuing trend has been the bringing forward of purchases to late November to take advantage of Black Friday deals, as well as the increase in consumer spending online.”

“This increase could be fuelled by borrowing, according to some estimates as much as 31% of consumers used credit to finance some of their Christmas spend. Given that UK consumers are some of the most generous in Europe, this could result in significant credit demand in January. As consumers receive their January credit statements and start to review their finances, they will likely look for more affordable and convenient forms of credit to help pay off the debt they took on over the holidays. Lenders must therefore ensure they are making the credit application process as streamlined as possible during this busy time. In fact, two thirds of consumers that we surveyed said they would wait no longer than 60 seconds for credit history checks over the phone or online. This clearly illustrates the need for lenders to provide fast and efficient decision services.”

“The advent of Open Banking, in turn, creates another great opportunity for retailers, finance providers and consumers alike. Although adoption will be slow initially, more consumers will become aware of the opportunities that Open Banking offers as the year progresses and this will be reflected in increased demand for improved, more personalised services in the lending industry. While the lending industry will be able to take advantage of a better knowledge of consumer spend behaviours, better anticipating needs, tailoring their products and making more accurate lending decisions.”