The latest Lloyds Bank Spending Power Report has found the biggest rise in food and drink expenditure for 20 months has driven essential spending to its strongest level of growth since February 2014.
The survey found that overall essential spending grew by 1% last month.
This was the third consecutive month of positive growth for essential spending.
Lloyds Bank’s analysis of its own current account data also shows that spending on groceries rose by 1.6% year-on-year – its highest rate of growth since March last year.
Meanwhile fuel expenditure rose by 5.9%, recording its biggest year-on-year increase since February 2013 as prices at the pump continue to climb.
This is in stark contrast to one year ago, when spending on petrol and diesel sank by -9.3%.
With UK Consumer Price inflation rising to 1.2% in November, Lloyds Bank’s regular consumer survey, conducted in conjunction with Ipsos MORI, found that the percentage of people who have a negative view of inflation has risen by 11pp over the last 12 months, to now stand at 49%.
Meanwhile the most common expectation for CPI inflation is that it will rise to 2% over the course of 2017.
When asked about the outlook for their disposable income, almost a third (31%) of people saw themselves having less money in twelve months’ time once all household bills and essentials have been paid.
Robin Bulloch, Managing Director, Lloyds Bank said:
“2016 has been a year of sustained growth in consumer outgoings, with the steady rise in expenditure on food and fuel driving a significant increase in overall essential spending.
“But while consumer confidence has remained resilient in the face of some seismic economic and political events, it seems the prospect of increased inflation is finally starting to weigh more heavily on people’s future expectations.
“Concern around the impact this will have on customers’ spending power next year is now becoming evident.”
With many people considering their Financial Plans for 2017, an important consideration for the year ahead will be how to save money on essential spending as price inflation continues to rise.
The Bank of England has forecast inflation will rise next year, where the CPI measure of inflation is expected to reach 2.7%.
The rise in price inflation expectations is being blamed on the fall in the value of the pound since the EU referendum in June, which has driven up cost of imported goods.
As you update your Financial Plan, it is important to make reasonable assumptions about future price inflation and, at the same time, review your household spending to keep your outgoings in check.