The cost-of-living crunch is hitting the UK’s least affluent households the hardest, with discretionary spending among the poorest households already declining.

Discretionary income among the poorest households in the UK declined 5.2% in the month of March – the equivalent of £26 per month – before the increase in energy prices took effect, according to the inaugural Retail Economics-HyperJar Cost of Living Tracker.

 

 

After paying for essential products, the average household saw discretionary income fall 4.9% year on year, leaving them with £52 per month less to spend on non-essential items. 

The data showed that in the month of March alone, the cost-of-living crisis wiped more than £1.4bn of discretionary spending. 

The Retail Economics-HyperJar tracker also found that poorer households have been hit disproportionately hard by rising inflation than more affluent households because they tend to spend a higher proportion of their incomes on essential items such as food and energy. 

 

 

Less affluent households are seeing 7.1% inflation, compared with 6.9% for more affluent cohorts. 

The research shows that more than half (55%) of consumers say the rise in the cost of living is currently their biggest concern, ahead of a ‘weaker economy’ (13%) and ‘lack of savings’ (8%).

A quarter of respondents said they currently “just about manage”, while 30% of respondents are “a little concerned” by their current financial situation before the true depth of the crisis has come to fruition. 

 

 

As a result, the data found that 61% of respondents were planning to rein in their discretionary spending over the next three months.

Retail Economics chief executive Richard Lim said: “It’s a real concern to see the least affluent families under this amount of pressure even before accounting for the energy price hikes. The unfortunate reality is that consumers are currently looking at the thin end of the inflationary wedge.

“The squeeze on incomes will set in motion recessionary behaviours, with many consumers shopping around more, trading down to own brands and scaling back on big-ticket purchases. Although many families have managed to increase their savings throughout the pandemic, this buffer lies almost entirely with middle- to high-income earners. 

“The most disadvantaged households will experience the brunt of the crisis, many of whom face the prospect of rising debts and tough choices when it comes to paying for everyday essentials such as food, energy and rents.”