Spending on non-essential items will plummet £12bn in the UK this year as consumers tighten their purse strings amid a spiralling cost-of-living crisis.

The stark findings, compiled in a report by Retail Economics and digital wallet HyperJar, will pile increasing pressure on retailers already grappling with rising inflation, growing energy costs and supply chain disruption. 

The forecast slump in consumer spending in 2022 – the equivalent of wiping out Britain’s entire DIY and gardening sector – will hit the country’s least affluent families hardest. 

According to the research, discretionary income will plunge 19.5% – almost £850 – among the poorest households in the UK.    

The average family will be left with around £430 less to spend on non-essential items, a 6.5% reduction in their spending power.  

By contrast, the most affluent households will see little to no reduction in their discretionary spend, the research found. 

 

 

Almost two-thirds of UK adults (64%) said they were worried about money, a figure that rises to 70% among people under 45. 

Even among the country’s highest-income households, 23% admitted they did not feel on top of their money and spending, while more than half (56%) said they worried about their finances. 

Some 14% of respondents aged 18-44 said they used three or more ‘buy now pay later’ (BNPL) products, and almost half (49%) admitted they are already failing to pay off their credit card or BNPL debt in full every month. 

Indeed, some 13% of all households said they only “just about manage” to meet minimum repayments on their credit card bills. 

The research also revealed a significant shortfall between the amount that Brits budget compared with how much they actually end up spending. 

The Retail Economics HyperJar data suggested that households have an average monthly budget of £1,097, but their actual spend comes in at £1,456 – a budget deficit of £359 every month. 

 

 

Although 80% of consumers set a monthly budget, and 79% try to put money aside in case of emergencies, the research suggested that staying on top of finances has become “increasingly complex due to the volume of financial relationships people have”.   

When accounting for debit and credit cards, BNPL providers and retailer loyalty cards, almost a third of consumers (29%) have eight or more financial relationships to manage.

Seeking loyalty

Some 85% of respondents said they wanted to be better rewarded by their loyalty cards, presenting an opportunity for retailers to “reimagine the way they connect with customers to offer them value and loyalty”. 

With consumers increasingly likely to trade down and shop around for the best deals as the cost of living crunch bites, price-sensitive shoppers will be keen to “form new, more rewarding relationships with retailers and brands”, the report added.  

Retail Economics chief executive Richard Lim said: “While the chancellor announced a raft of supportive measures for households over the coming months, the reality is the cost-of-living crisis is far from being averted. Rising inflation will see spending power under huge pressure, particularly for the least affluent households that spend a disproportionate amount of their income on non-discretionary items such as food, energy and fuel.

“We’re likely to see recessionary behaviours kick in for many households, which will cut back on the nice-to-haves and prioritise low costs to make their budgets stretch that little bit further”

Richard Lim, Retail Economics

“We’re likely to see recessionary behaviours kick in for many households, which will cut back on the nice-to-haves and prioritise low costs to make their budgets stretch that little bit further. A more cost-conscious consumer will emerge in the coming months, looking to form new relationships with brands that can align to these new priorities.”

HyperJar chief executive Mat Megens added: “The increasingly fragmented picture of people’s finances and an explosion of instant credit has made staying on top of money trickier.

“We believe traditional banking services have been slow to adapt to today’s increasingly digital and inflationary world. We want to give people tools that help them make better decisions about how to spend and use their money.

“Helping people to budget, prioritise, focus and benefit from their loyalty to retailers is the best way to help them spend well during a difficult financial time for the nation.”