A look at how spending has changed in light of the upcoming recession
The increasing cost of living has meant that people are more cautious about spending, but there’s no getting around the fact that everyone still needs to – even with a predicted recession looming ahead.
In the 2020 lockdowns, every household’s income was impacted in one way or another. Some continued to work throughout, racking up their savings while their outgoings were very significantly reduced. Others lost work and suddenly found themselves with less money than ever before, while those on furlough were trying to balance out their regular monthly spending on a reduced budget.
But how has spending changed since the pandemic and how will it continue to evolve in light of further economic hardships?
Changing spending habits
A survey from the Office of National Statistics (ONS) has shown that online shopping, particularly for leisure and hobbies, increased during lockdowns and has remained high. Though data suggests it peaked when all non-essential stores were closed, it has so far remained more popular than it was pre-pandemic.
It’s the first group of households mentioned – those who continued to earn but stopped spending during lockdown – that are best able to keep shopping through the cost of living crisis. This is due in part to the savings they amassed during the pandemic, but also reflects the job stability that put them in an improved position through the pandemic.
A separate study also found that, in response to the cost of living crisis, 44% of people have changed their online spending habits one way or another. 40% are tracking their spending more accurately, and 21% have stopped buying on credit where possible.
However, now some 1.2 million households face joining the breadline in the coming year, and one in five homes is expected to be left without any savings by 2024, we are likely to see short-term spending, particularly on non-essentials, fall by record levels.
Where spending is up
In recent months, the cost of living crisis has taken full effect, as inflation hit a 40-year high of 9.4% in June 2022 – a number that’s expected to peak at over 13% following news of the predicted recession. We have no doubt all been affected in some way, with household energy bills increasing by 54% in April and further increases now certain from October this year, up to as much as £4,000 by January 2023.
Fuel also reached record highs, though the AA has since announced that prices were expected to drop, amounting to savings of up to £10 per tank. Though AA’s fuel spokesperson said that “in many places, the price cuts are quite simply not happening despite more than six weeks of falling costs," and so it remains to be seen how many people will benefit. In light of the news of a recession, fuel and diesel prices are still falling slowly, in part at least due to an expected weakening in demand due to the potential reduction in economic activity.
Where is spending is down
Tesco has reported that Britons are buying less and prioritising cheaper items, despite visiting stores more often. The supermarket chain has said its trading is down but visits are up as shoppers aim to reduce their spending by buying what they need when they need it rather than in big weekly shops.
Food inflation is expected to rise to 15% over summer, so these trends look set to continue for supermarkets. Tesco described this time as ‘incredibly challenging’ – especially as the big UK supermarket names race to match prices from budget supermarkets like Aldi and Lidl.
A similar report from Scottish Widows has shown that 81% of the 5,000 Britons surveyed are concerned about making ends meet and 24% have had to dip into their savings since the cost of living crisis began.
It’s no surprise, then, that 35% of Brits surveyed by Scottish Widows are planning to cut back on non-essential activities, leisure, and holiday spending – a huge blow for families that may have been looking forward to their first summer holiday since before the pandemic hit.
Increasing immediate spending for long-term savings
For those who are able, the benefits of immediate spending to increase their long-term cost savings have led to something of a boom in green home improvements. Natwest’s Greener Homes Attitudes Tracker has shown that 63% of UK households are planning to make sustainable improvements to their homes in an effort to tackle rising energy costs.
This trend is especially prevalent among younger homeowners, with those aged 18-34 being twice as likely to install a heat pump than older generations. Overall, younger cohorts exhibited more interest in adapting to new technologies, even though older groups often had more money to spend on home renovations.
However, this could also be influenced by the fact that young homeowners are having to play catch up as they’re less likely to have energy-efficient features. But with 62% of respondents claiming that they’re taking steps to minimise their energy use at home, now is a great time to invest in green home features.
As well as our dedication to building financial resilience in South West England, Great Western Credit Union also helps people to finance bigger purchases that can help them to reduce spending in the long run.
Whether that is home improvements or just some financial support for those who are struggling during this difficult economic period, we are here to help. Contact us today at firstname.lastname@example.org or call 0117 924 7309, from 9am - 4pm, Monday to Friday, except Bank Holidays.