UK Consumers Choose to Save Despite Being £200 a Month Better Off

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The average UK household is £200 better off each month than it was last year. But with the uncertainties of the recession and falling house values many consumers are reigning in spending.

Typical household discretionary income has risen dramatically over the last twelve months. The average UK family with a mortgage is now 25 per cent better off each month than it was last year – reveals a report by Ernst & Young.. After tax contributions and monthly bills, the average household now has over £200 a month more left over compared to 2008 assuming that they did not become unemployed.

The increase is driven overwhelmingly by lower mortgage repayments in line with historically low interest rates, other costs such as petrol, electricity and gas have also fallen from last year’s peak.

“Even though we’re still in recession, many householders who have not been hit by unemployment have experienced a dramatic upturn in their monthly budgets over the last year,” comments Jason Gordon, retail director at Ernst & Young.

“However, the figures clearly do not tell the full story. Although a typical consumer (with a mortgage) may now have more money to spend on a monthly basis, the sharp house price declines of the last 12 months have significantly eroded their overall wealth.

“In addition, alongside falling house prices, the bleak economic climate and fears of job losses have had a devastating impact on consumer confidence. Consequently,” he continued, “ many consumers are using their increased monthly spending power to repair savings balances and pay off credit cards and other debts. These gains are certainly not being spent freely on the high stree.”

In spite of these cuts in household bills, some individual costs have continued to rise in 2009, albeit at a relatively modest rate. For instance, typical households have seen rises in council tax (+3 per cent) buildings insurance (+3 per cent) and public transport (+6 per cent) over the last year.

He went on to say: “In recent weeks, there have been some tentative signs of stability in the economy and the housing market. Consumer confidence has also picked up from its all time low. However, it remains to be seen whether these indicators translate into a sustainable recovery. Until they do, it’s unlikely that consumers will rediscover their appetite for retail therapy.”

The Retail sector presents a contrasting picture as a result of recessionary pressures. Despite being better off financially most consumers are being cautious in spending.

“Although overall like-for-like sales have been consistently in negative territory for 12 months, we’ve seen a rapid increase in the pace of polarisation across the retail sector.

“On the one hand, sales at supermarkets, value-based retailers and specific market segments such as young fashion have held up very well. In contrast, highly discretionary purchases such as jewellery, big ticket items and those linked to the housing market have suffered – for example electricals, furniture and DIY. We expect trading in these sectors to remain tough in the second half of 2009,” he added.