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Why is consumer spending slowing down in the UK?


Over the past few weeks, recent data has shown that inflation levels have soared up, predicting 7% inflation by April 2022. This has led to rising living costs, affecting consumer spending in the UK. Recently, restrictions have been imposed to contain the high infection rates of coronavirus (such as limiting social activity), further decreasing consumer spending further.

Consumer spending was hit in sectors such as hospitality which took a major downturn after the pandemic hit (approximately 6 %) and restaurants also became less popular (about a 17 % contraction) compared to pre-pandemic in the same months.

The travel sector was also affected by the government’s Plan B restrictions, due to working from home guidance which resulted in a steeper decline in public transport - meaning that the same trains that were busy a year or two earlier are now running empty.


As inflation is increasing, we see that real income is decreasing at the moment and therefore consumer spending on superior goods and non-essential goods would decrease as they would have less disposable income. This has led to non-essential spending being cut in half between December and two years prior.


However, staple goods (which are consumer goods that are consumed on a regular basis and are bought often or regularly such as groceries and fuel) saw a small increase of 10 % because of their necessity of them - they are inelastic goods.


According to Barclaycard, around 9/10 Britons said they were concerned about the impact of rising inflation on their household finances due to higher interest rates which we have seen double from 0.25% to 0.5% which will be introduced to combat high inflation rates. About 3/10 of Britons also said they expected increasing household bills to affect the amount they spend on discretionary purchases.

This anxiety in consumers will prevent the comeback of UK consumer spending which has helped drive the economy from the pandemic.

Although consumer spending is currently slowing down, it has been shown by data that spending is still higher than it was in 2019 at the same time and at much higher rates than it was in 2020.

Retailers are predicting that they would face more competition from other spending opportunities as the public will eventually flood back to restaurants, cafes and live events in the future. Rising inflation, driven by higher costs of production, higher energy and transport prices, and other price increases, will mean consumers will have to be prepared to spend more or have more confidence in spending their disposable income this Spring.

 

Written by Rohan Dhir



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