While the narrative around the UK economy has bordered on optimism in recent months – with stats suggesting wage growth is finally outpacing inflation – consumers are feel they are less secure than they were a year ago. Compared to the start of 2023, more than four-in-ten feel less financially stable heading into 2024.
Even as experts point to the ‘cautious optimism’ inspired by inflation falling, few UK consumers are finding the opportunity to ease off spending cuts. The ONS found that the average wage growth in the UK rose above inflation in August, but it was the first time that had happened in two years. Meanwhile, the fact most employers did not keep pace with inflation has left the average household more than £2,300 worse off – which a couple of months of quicker wage growth have not come close to making up for. At the same time, not all employers are granting pay-rises, even now.
With all this at play, a new poll of UK consumers by KPMG shows that many still feel the cost-of-living crisis is biting hard. Of 3,000 individuals across the country, just 22% said they felt more secure at the start of 2024 than they did at the beginning of 2023.
In contrast, 41% said they were less secure, while 35% said there had been no change. With many of them likely having already been feeling the pinch 12 months ago, this suggests a majority of UK consumers will continue to struggle to make ends meet this year.
Supporting this, KPMG found that a 58% portion of consumers were planning to cut down on ‘non-essential’ spending. While a further 29% said their spending would be unchanged from the previous year, again, a number of those would have already been cutting spending in 2023, and are simply proceding at a reduced rate. Meanwhile, a meagre 8% said they would be able to increase spending beyond their ‘essential’ costs of food, utilities, rent and mortgages.
This does not bode well for several aspects of the UK economy, which have already been struggling since the start of the inflation boom in 2022. When asked where they will find savings from their non-essential spending, 53% said that holidays and leisure travel – suggesting that both airlines finding it difficult to build back from the pandemic, and domestic holiday locations may see demand plateau.
At the same time, 45% said their budgets for eating out would take a hit, and 42% said food and drink would have to be cut. Insolvency data in 2023 showed the impact of these pressures already: restaurants closed at their highest rate in a decade in the first three months of the year, according to figures from Price Bailey – and so further cuts to dining spending will take a further toll on the sector this year. Meanwhile, luxury food and drink brands – including the UK’s over-saturated craft beverage market – have also shown they are vulnerable to the same pressures.
Commenting on the findings, Linda Ellett, UK Head of Consumer, Retail and Leisure for KPMG, said: “As more households are exposed to higher mortgage rates or rent, the number of people needing to cut non-essential costs increases. Our survey also indicates that those consumers who have already adapted their shopping behaviour to lower their costs during 2023 are going to continue these steps during the next twelve months. With margins under prolonged pressure and interest rates remaining elevated, this consumer and economic landscape will continue to challenge the structure of some businesses.”
Non-essentialism
KPMG’s data also showed the loaded nature of the term non-essential spending. While keeping a roof over the family, and the heating on through winter are priorities, many people would dispute the idea that buying clothing for their children was not essential spending. But the 16% who said they would spend less on children’s clothes and toys are included as part of the group that said they were downsizing their essential spending.
The same number said they intended to spend less on their pets – which is also classed as a discretionary spend, despite the proven mental health benefits of animal guardianship – something employers supposedly have a great interest in, at least with regard to an individual’s productivity in the workplace.
And, in an increasingly digital world – in which everything from banking to job-hunting, to tax returns and government services is moving into app-based interactions – classifying electronics which enable the use of those services as ‘unnecessary’ is arguably narrow-minded. Still 21% of consumers are downsizing this particular form of spending.
