Spending power growth dipped to its lowest level since April 2011 in September as income growth weakened following a resurgent August. The decrease means, once essential items had been paid, that people had on average approximately £100 less than a year ago to spend on non-essential items.

Data from August had suggested that the pressure on consumer spending power might have eased somewhat year-on-year, however the latest figures from Lloyds TSB’s Spending Power Report indicate that the underlying trend of squeezed household budgets remains. The bank say this recent volatility may in part be attributable to the mixed weather conditions and events over the summer months - such as the Queen’s Jubilee and the London 2012 Olympic Games.

Lloyds say that income growth at just 1.7% would appear to be the key driver behind the weakness in spending power during September as average incomes grew at the weakest rate since December 2010. People are now spending 3.3% more on essential items compared to the same time last year - the lowest growth rate seen in this measure since December 2011 - while their reported average monthly grocery spend fell back to £269 in September compared to £273 in August.

Patrick Foley, chief economist at Lloyds TSB, said: “Despite the volatility in the data, it is clear that the underlying trend in real incomes is negative despite the fall in inflation from last year’s high. I expect inflation to fall only slightly further over the coming months so any improvement in the situation will need to be driven by growth in incomes and this will depend on the wider economy. The pattern of consumers following rather than driving economic developments appears set to continue.”