COMMENT
Take cover
David Wylie considers how households are going to weather the coming inflation storm. The escalating cost-of-living crisis is undoubtedly going to put considerable stress on household finances. I need not repeat all the figures here, but the most alarming is easily the energy price cap. For a typical household, the price cap - already increased to £1,971 on April 1 - will rise again on October 1 to the new government’s £2,500 ceiling. It goes without saying that the impact of this is going to be dramatic, given that energy will not be the only thing people will be paying more for. Add into the mix shop prices, transport, council tax and water bills, which are all set to rise in line with inflation. Also, consid - er the fact that this is a ‘typical’ energy bill, not an average or even median bill. There will be many for whom this figure significantly undercuts reality. Faced with such ballooning outgoings, what are households going to do? If we look to previous periods of inflation and financial hardship, we find that they are likely to turn to one or more of four
key remedies: cutting back on spend- ing; falling into arrears with household bills; more borrowing; and defaulting on existing credit arrangements. Thankfully, for perhaps the majority of households these remedies will likely not be called on. For them, the inflation shock will be uncomfortable but beara- ble. The top half of UK households have a disposable income of more than £31k and, unless heavily indebted, this will be sufficient to weather the storm. "Faced with such balloon- ing outgoings, what are households going to do?" It is the remaining 50% of homes, and specifically those in the bottom 20% with a disposable income of less than £19,500, who will likely be increasing - ly turning to one or more of these four options over the coming months. In contrast to previous downturns, however, they may not prove to be as helpful as before. Cutting back on spending - tradition- ally the first target for consumers - is going to be trickier this time round. Disposable incomes have been shrink-
ing. There was a record 18% drop in average household disposable income in June 2022 compared to the same month in 2021, according to the Asda Income Tracker collated by the Centre for Business and Economic Research. After paying tax and essential bills, the average household had £200 a week left – a figure that has fallen for eight consecutive months to a level not seen since December 2017. At this compara- tively low level, discretionary spending on items such as eating-out and shop- ping will come under the spotlight as well as gym memberships and stream- ing services. But if option one is not enough, more households are going to consider falling into arrears on household bills. Once those with stiff civil penalties for nonpayment such as Council Tax are discounted, they may take the decision to cancel their direct debits. Symptomat- ic of the way some may have changed their view of taking such action is Don’t Pay UK, which we covered earlier in this issue. For many, the third option – borrowing - is not going to be so easily tapped. Their ability to cushion the shock with credit could well be limited.
12 | Metrics Monthly
Q3 | 2022
Made with FlippingBook - professional solution for displaying marketing and sales documents online