Cash-strapped households reluctant to splash out as living costs rise

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Under-pressure households are becoming increasingly cautious about making major purchases as the squeeze on their spending power leaves them more downbeat about their finances, research has found.

The proportion of people feeling good about their finances has fallen back for two months in a row, according to the Lloyds Bank Spending Power Report.

Some 63% of consumers reported a positive assessment of their financial situation, down from 65% in April.

In March, 68% of people had felt good about their finances - marking a 12-month high for the index, which asks 2,000 people across the UK about their spending habits.

In signs that households are feeling the squeeze from rising living costs, the proportion of people feeling negative about inflation reached its highest level since February 2014, with 62% of people feeling downbeat about inflation in May.

The proportion of people who said that they had money left over after they had covered all monthly outgoings fell from 84% in April to 80% in May.

Meanwhile, the proportion of consumers describing their household's financial situation as comfortable also fell, from 62% in April to 60% in May.

Office for National Statistics (ONS) figures show the Consumer Prices Index (CPI) measure of inflation reached its highest level in nearly four years in May, with a rate of 2.9%.

Robin Bulloch, managing director of Lloyds Bank, said: "Inflation continues to be front of mind when people consider the health of their personal finances.

"With consumers now reporting a significant impact on their disposable income, there's simply less money left over each month for buying the occasional treat."

The findings came as a separate report indicated that consumer confidence also dipped in the days surrounding the General Election in June.

GfK's Consumer Confidence Index decreased five points to reach a score of minus 10 in June. 

Joe Staton, head of market dynamics at GfK, said part of the index which relates to major purchases has shown a particular plunge - which is significant for the UK's retailers as people show signs of becoming increasingly cautious over non-food spending and a softening appetite for going into debt.

Mr Staton said: "This month's survey covers the period before and after the UK General Election and reveals a sharp drop in confidence among consumers across all measures.

"The overall index score is just two points away from last year's post-referendum low of minus 12. We have falls this month reflecting negative sentiment about our personal financial situation and expectations for the wider economy."

He continued: "Strong consumer spending has propped up the economy since last June but now the twin pressures of higher prices and sluggish wage growth are squeezing household finances and adding to widespread fears of a Brexit-induced economic slowdown."