Two-thirds of UK consumers are planning to cut their discretionary spending in 2023 amid concerns about the cost of living crisis, according to a survey.
Highlighting the pressure on families and the wider economy from inflation, the accountancy firm KPMG said 61% of consumers in a poll of 3,000 were preparing to reduce their spending on eating out, holidays and other non-essentials.
It found concerns over the cost of basic items – such as food, energy, fuel, and mortgage or rent costs – as well as worries over how much further these could go rise, were the biggest deterrents for discretionary spending.
With inflation above 10% for the first time since the early 1980s, households across the UK have tightened their belts to accommodate soaring gas and electricity bills and the rising cost of a weekly shop, prompting the Bank of England to warn about a lengthy recession.
Official forecasts show sky-high inflation will erode average real pay and cut living standards by 7% over the two years to the end of March 2024 – wiping out the previous eight years of growth.
Highlighting the uneven impact for some families, the KPMG survey showed one in 10 adults had no savings. Only 4% said they would be able to increase their non-essential spending levels in 2023, while a quarter would stay at their 2022 level.
Of those with savings, 43% said they were using them to help meet essential costs. This rises to more than 80% among some low-income household groups, reflecting the disproportionate impact of living costs for poorer families.
One in 10 consumers highlighted concern about energy bills after April, when the government will reduce the amount of support available to families by increasing the cap on average bills from £2,500 to £3,000 for a typical household. Consumers also cited the end of fixed-term mortgage deals, as well as variable-rate mortgages, as barriers to their spending.
KPMG said a third of consumers plan to buy more own-brand and value products in 2023, while a third would buy fewer items altogether. The most common areas for saving on discretionary spending were eating out (46%), followed by clothing (42%), and takeaways (42%).
Linda Ellett, UK head of consumer markets, retail and leisure at KPMG, said: “Current essential costs, fears of how high they’ll rise – including concerns about mortgage rate and energy price changes next year – are all factors in why two-thirds of consumers that we surveyed said they have to reduce their non-essential spending in 2023.
“To do so, consumers are increasingly changing how they shop to save money – including switching to cheaper retailers, buying more value or promotional produce, and swapping eating out for meals in. Understanding these swaps is critical for brands and retailers looking to still be the first choice for spend.”