Consumer Pulse Q3 2022

Economic Pressures Growing

Consumers are weathering yet another economic crisis. Since the start of 2022, consumers have seen inflation soar (expected to reach 13% by Q4 2022)1, reportedly driven by the war in Ukraine, ongoing global logistics shortages and low unemployment. Low-income consumers especially felt the deepening impacts of April’s 54% Energy Price Cap hike2; many already in financial distress and unlikely to weather the expected October hike. These pressures are behind the Bank of England’s rate rises to 1.75%, subsequently increasing not only the price of everyday goods but also the cost of credit for the average consumer.

Discretionary Spend Decreasing; Bills and Loans Increasing

With the cost of living crisis putting pressure on household disposable incomes, close to 60% of consumers surveyed indicated they’d already significantly reduced discretionary spend (e.g., dining out, travel, entertainment) in the past few months and intended to reduce it further in the next three months. Whilst all spend categories were impacted, respondents indicated intent to significantly decrease discretionary and retail (e.g., clothing, electronics, durable goods) spend activities. This has far-reaching implications for the retail sector, as well as consumer quality of life as a large proportion of consumers anticipated significant increases in their bills and loans (e.g., housing utilities, insurance, credit cards) over the next three months.

Financial Distress Signs Emerging

Even with spend reductions and tightening of belts, a sizeable portion of consumers were already experiencing financial distress, especially those anticipating higher utility costs over the next three months (26% of respondents expected to be unable to pay their bills and loans in full).

Thanks to consumer belt tightening, the credit market has yet to experience the expected increase in arrears events, but there did appear to be an observable uptick in demand for unsecured credit — possibly driven by demand from vulnerable populations. All the early warning signs are there; consumer sentiment is plummeting, and the buffer allowed by savings and expenditure reductions appears to be cracking.

Most Financially Stable

Within the uncertainty of the cost of living crisis, it’s worth keeping sight of the large portion of the population that remained financially stable. Seventy-four percent of responding consumers felt they’d be able to pay all their upcoming bills and loans in full. In the last three months, 17% said they received a raise and 29% expected an increase within the next year.