Brits already cutting spending amid cost of living squeeze

Predictions that the historic cost of living crunch will trigger a sharp pull back in spending look nailed on come through, two surveys suggest.

Around one in three households have already cut spending just four months into the year, consultancy KPMG said today.

Brits are forgoing discretionary purchases in response to greater pressure on their finances from rampant inflation.

Some 67 per cent of households have cut clothes purchases, while a further 65 per cent are shunning eating out, KPMG said.

Separate research from pensions and retirement specialist LV= released yesterday indicated higher prices for essential items is prompting households to rummage for cheaper alternatives.

Over one in three consumers, equating to 15m UK households, are buying cheaper brands.

The surveys underline how the cost of living squeeze is changing consumers’ behaviour and driving them to exercise greater caution.

Consumers typically downgrade to cheaper goods and services if their income fails to keep pace with inflation. Higher expenditure on basic necessities such as energy deals a greater blow to lower income households, the group that drives a large proportion of consumer spending in the UK.

Worryingly, the cost of living squeeze is expected to tighten its grip as the year wears on, with some experts predicting inflation will peak at over 10 per cent in October when the cap on energy bills is lifted again.

Inflation is already running at a 30-year high of seven per cent.

The Office for Budget Responsibility has cut its forecasts for UK growth this year off the back of consumers responding to the sharpest fall in living standards for 66 years by reducing spending.

The International Monetary Fund this week also downgraded forecasts for UK growth one percentage point to 3.7 per cent this year.

Experts have predicted spending could be sustained by Brits tapping into their warchest of savings built up over the course of the pandemic.

LV= estimates 23 per cent of people have dipped into their savings already this year.

However, this bank of savings is unevenly distributed across the economy due to poorer households being more likely to have experienced job disruption during the worst of the Covid-19 crisis.

“The cost of living squeeze has caused a third of the consumers we surveyed to cut back spending on the things they want, and offset their bills by dipping into their savings, where possible,” Linda Ellett, UK head of consumer markets, retail and leisure at KPMG, said.