Household finances: two sides of the coin as cost of living eats into consumer spending

26 June 2023
With rising interest rates and the high cost of living, a survey* of 1,000 consumers over the age of 18 found 64% said they would have the same amount or less money in three months’ time than now.

The survey, on behalf of RSM UK, the leading audit, tax, and consulting firm, shows a third (33%) of consumers said they could not afford luxuries but could cover essential spending, 14% said they could only just cover the cost of essentials and 6% said they often couldn’t afford essentials.

On the flip side, nearly half (47%) said they were feeling very comfortable or relatively comfortable when it came to their personal finances. 

Fifty-seven per cent of those in work had been given a pay rise this year with the vast majority (44%) receiving a 2-7% pay boost, and 11% receiving a pay rise of less than 2%. Twenty-two per cent of respondents were expecting a pay rise in 2023 who have not yet had one, but just over a fifth (22%) were either not confident or not sure if they would receive one. 

Tom Pugh, economist at RSM UK, said: ‘Although workers are getting pay rises, most aren’t in line with inflation which means they have less money in real terms to spend. This reflects the trend that consumers are cutting back on how much and how often they spend, and focusing on where they can make savings. Half of those surveyed said they would be cutting back on going out in the next three months. With rising interest rates continuing into the second half of 2023, consumers’ incomes are going to be squeezed even more.’

There is, however, optimism as the summer holidays kick in. Sixty-eight per cent of consumers plan to take a vacation in the next three months, rising to 77% when looking at families in isolation. Of these families who consider themselves to be financially comfortable, they are particularly prioritising holidays – with 83% having plans for one in the next three months. A third of respondents were planning on taking an overseas summer holiday in the next three months. 

Chris Tate, head of hotels, travel and tourism at RSM UK, said: ‘There is still a lot of pent-up demand as a hangover from lockdown travel restrictions. This, despite high costs and rising interest rates, shows consumers are resistant to give up their summer getaways. The rise in overseas holidays may be to the detriment of UK holiday destinations. However, for those hoping they can bag a staycation bargain, they may be disappointed. RSM’s Hotel Tracker is showing average daily rates are still rising as hotels manage rising energy, food and wage costs.
‘It’s clear from our survey that many consumers are making sacrifices elsewhere to take their trip. Twenty six per cent of respondents who are planning to take a holiday intend to reduce spending in other areas to save money for it. On the other hand, respondents who are not financially comfortable are twice as likely to forgo a holiday, with 61% saying they will not be taking one at all.’