UK consumers to cut back in 2024, adding to recession risk
UK CONSUMERS are increasingly worried about their financial security and holding tighter to their purse-strings heading into 2024, reviving concerns that the economy could tip into a recession.
While inflation has now fallen or remained steady for nine consecutive months, 41 per cent of consumers say they’re feeling less financially secure than at the end of 2022, according to a survey from KPMG.
Separate data from Barclaycard showed card spending increased just 4.1 per cent over 2023 despite ever-rising prices, less than half the 10.6 per cent gain a year ago and near the rate of inflation. The figures indicate households have cut back on clothing, eating out and home improvements.
Many shoppers noticed their money wasn’t going as far, Barclaycard’s survey found. At its peak in September, 76 per cent noticed examples of “shrinkflation” – where products are sold for the same prices, but contain less.
The reports underscore forecasts that the economy will stagnate at best and may have contracted late in 2023. While the UK may avoid a sharp downturn and better fortunes in the second half of next year, for now consumers are smarting from years of eroded spending power, setting up a gloomy backdrop for the period ahead of the next general election.
While consumer price inflation is now just under two times its 2 per cent target, compared with more than five times a year ago, unemployment is also expected to rise as businesses cut back on their costs to adjust for reduced demand. The Bank of England’s base rate, which has increased to combat rising prices, is 1.75 percentage points higher than it was this time last year, pushing up costs for borrowers.
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That’s a headache for Prime Minister Rishi Sunak, who is lagging the opposition Labour Party in the polls. Both major political parties are vowing to boost growth and will be starting with a tricky hand.
“As more households are exposed to higher mortgage rates or rent, the number of people needing to cut non-essential costs increases,” said Linda Ellett, UK head of consumer, retail and leisure at KPMG. “With margins under prolonged pressure and interest rates remaining elevated, this consumer and economic landscape will continue to challenge the structure of some businesses.”
Separate figures on the housing market showed prices held up better than expected in 2023 due to a shortage of properties on the market. Nationwide Building Society said the average cost of a home fell 1.8 per cent over the course of the year to £257,443 (S$432,573), much less than the 10 per cent drop most had expected a year ago.
Workers’ union body the TUC today also warned unsecured debt, excluding student loans, is set to rise 11 per cent next year. That would mean unsecured debt such as credit cards and purchase hire agreements rising by an average of £1,400 per household in real terms over the next 12 months, and hitting a record of £17,200 by 2026, it said.
The analysis of figures from the Office for National Statistics, and forecasts from the Office for Budget Responsibility, paints a bleak picture for household finances over the next few years.
“If something doesn’t change, real wages won’t recover to their 2008 levels until 2028,” said TUC General Secretary Paul Nowak. “These 13 years of economic stagnation have left working people brutally exposed to the cost of living crisis.” BLOOMBERG
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