Staggering £25bn down the drain as 9 in 10 Brits plan to cut back in 2023
Close to £25bn-worth of discretionary outgoings in the “cut-back economy” may be lost this year as close to nine in 10 people plan to reduce their spending over the year ahead.
More than a third of UK households are “financially distressed” and plan to cut back across most, if not all, of their non-essential spending, as low incomes and high debt levels leave little room for manoeuvre, according to a new report.
Around a quarter of households are deemed to be comfortable but cautious, meaning they are financially secure but will cut their spending as a precaution.
A further 25 per cent are “squeezed spenders” who recognise the need to cut back but generally prefer to borrow or dip into savings. And one in seven (14 per cent) is “financially immune”, with no plans to cut back.
Of those planning to cut back generally, more than a quarter (28 per cent) intend to do so across all areas of their spending, according to the research from Grant Thornton and Retail Economics.
Nearly a third (32 per cent) plan to make cuts across most of their spending, the survey of 2,000 people in May found.
The significant cutbacks in households’ non-essential spending will be made to help offset sharp rises in everyday living costs, such as food, fuel and energy bills, the report said.
Spending habits in 2023
Around two-fifths (41 per cent) of people expect the squeeze on living standards to affect their spending habits until at least the end of 2023.
The typical UK household is set to cut back £887 of their discretionary spending through to April 2023, based on economic modelling within the report.
Across all households, the cost-of-living crisis could wipe out £24.9 billion-worth of discretionary spending across the economy during this financial year, the research suggests.
The most affluent fifth of households could cut their spending by £2,654 typically, while the fifth of the population who are the least wealthiest could reduce their spending by £573 on average, according to the calculations.
Richard Lim, chief executive of Retail Economics, said: “Against this more cautious consumer backdrop, retailers and brands that fail to meet the needs of their customers will quickly be left exposed.
“Customer-centricity has always been the recipe for success, but, as the cost-of-living crisis intensifies, the requirement to demonstrate this becomes more pressing.
“This will require investment, the latest technology and leading talent to deliver, but fundamentally it is back to basics for retailers and leisure operators – driving efficiency, shoring up supply chains, and putting consumers first.
“It has never been more important for businesses to focus on building loyalty and securing customer lifetime value by converting customers into fans.”Richard Lim
Groceries, fashion, and restaurants are the top three areas that people across the UK will cut back on, the research indicates.
For most, cutting back on the weekly food shop will involve switching to cheaper private-label brands or discounters (52 per cent), using loyalty schemes and vouchers more often (40 per cent) and buying more in bulk (32 per cent).
Financially distressed households are having to resort to more extreme measures, such as eating less, researchers said.
Three in five (58 per cent) Generation Z (18 to 24-year-old) shoppers plan to cut back on fashion purchases – a higher proportion than any other age group.
Nicola Sartori, from Grant Thornton UK LLP, said: “With the average household set to cut back £887 of their discretionary spending through to April 2023, UK retail and consumer industries are at risk of losing out on £24.9 billion of spending this financial year.
“Businesses will need to adapt their propositions to differentiate themselves from the competition and maintain relevancy as a more cost-conscious consumer emerges.”