For most of the past two years, consumers have adopted a remarkably resilient attitude to their finances. Despite the uncertainty of the pandemic, economic confidence was, for the most part, somewhat bullish during this period.
As measures such as the furlough scheme have been withdrawn while inflation has grown, this bullishness has quickly vanished in recent months. Household financial confidence now sits at a lower level than we have ever previously measured in The Optimism Index, whilst net confidence in the economy as a whole has fallen by 22% since January.
Whilst we might expect savings to increase during periods of declining confidence, the rising cost of everyday expenses simply makes that impossible for many consumers.
Net expected savings have fallen by 17% since the turn of the year (7% to -10%) whilst net expectations for everyday spending (on groceries and essentials) remain high (7% this month).
Such a sharp decline in both financial outlook and expected savings is already having a significant impact on consumer spending patterns, with a greater focus on thrift – using money and resources more carefully.
Compared to last November, the proportion who have cut back on spending across a variety of categories has remained relatively consistent. However, the reasons for such cutbacks are changing. The proportion who have cut back in order to try and save money has increased by at least 8% across each category of spending since November.
Additionally, during the same period, the proportion who have cut back due to environmental concerns has consistently declined. With the cost of living coming under increasing scrutiny, consumers are less able to prioritise environmental issues when making purchasing decisions. This is also a sign of the New Morality in action – consumers are less able, quite literally, to afford wider concerns – and so sustainability is less of a motivation than before.
As well as cutting back to save costs, consumers are also changing where they choose to spend. Compared to November last year, the proportion who have recently begun shopping around for groceries, comparing prices online and using cheaper supermarkets where possible, have all increased.
The emphasis on thrift is already having real world implications for UK supermarkets.
Recent analysis has indicated that only Aldi and Lidl, traditionally associated with lower prices, saw an increase in sales in the first three months of this year, whilst all other supermarkets saw sales decline.
Competitors to budget supermarkets are already adapting their pricing strategies as a result. After facing recent criticism for failing to adhere to the demand for low-cost groceries, Asda have recently launched a new ‘Just Essentials’ range of products – easy to identify on shelves and priced lower than their other own-brand products.
As consumers grow increasingly price-conscious, the degree to which other sectors can tap in to the demand for budget-friendly options is likely to determine future successes. Charity shops, for example, may experience increased demand for second-hand clothing and furniture as consumers look to cut back on all non-essential purchases and spending on big ticket items.
Whilst financial confidence is already at record-breaking lows, the worst could still be yet to come – with both the energy price cap and National Insurance contributions still to increase. Thrift is already emerging as a key consumer trend in the ‘post-pandemic’ economy, and it is set to only grow in importance as household finances face further squeeze.