New research confirms that most UK households expect the cost of essentials such as food, non-alcoholic drinks, electricity, gas, and motor fuel to rise considerably by the end of the year.
A survey by Retail Economics found more than 4 in 5 (84%) families are budgeting for an average rise of around £23 per week. Across all UK households, this equates to an additional £627m per week which will lead to a displacement in spending across other areas of the economy.
According to data from the ONS, households spend approximately £109 per week on average on food and non-alcoholic drink, electricity and gas, and motor fuel. The Retail Economics research shows that consumers expect this to rise by a fifth to some £132 per week before the end of 2021.
Consumers were found to be worried about the additional costs of supply chain disruption, CO2 supplies, energy costs and fuel shortages being passed onto them, with two thirds (67%) concerned about rising costs of living. This is up from 54% last month (September 2021), with concerns about inflation now at the highest level in more than five years.
Nicholas Found, a senior consultant at Retail Economics, said: “Households are bracing a hefty squeeze on their personal finances heading into Christmas.
“Consumers have faced fuel shortages, delays in receiving goods and energy price increases in an incredibly short period of time. While some factors pushing up prices are merely temporary, the overall trend of rising costs for essentials will ultimately hit all households and disproportionately hit the least affluent the hardest.
“The rising cost of living is expected to displace spending on non-essentials, with consumers more likely to cut back than spend more on discretionary purchases going into next year.
“This points to household spending being pinched at a time when the economy needs consumers to drive the economic recovery.”
Official figures released today show that the rate of inflation in the UK had edged down slightly to an annual rate of 3.1% in September, from 3.2% in August. However, most analysts expect it to surge in the months ahead and force the Bank of England to intervene with a hike in interest rates.
The Office for National Statistics (ONS) said rises in the cost of fuel last month, reflecting the impact of the delivery difficulties that sparked panic-buying, and wider increases across the economy were offset by falling restaurant and hotel costs as the effects of last year’s Eat Out to Help Out scheme fell away.
However, October’s figure is set to shoot up – driven by the 12% jump in the energy price cap at the beginning of this month and wider increases in the cost of goods and services linked to the Covid global supply chain disruption and worker shortages.
The British Chambers of Commerce declared that the dip in the CPI figure reflected “temporary data distortions rather than the reality on the ground”.
NAM Implications:
- The key is how much of the ingredient/energy costs will end up on shelf/hospitality table?
- For sure the market appears to be preparing the consumer for 5% to 10% increases…
- …in a fragile-demand environment…
- …in expectation of the government shouldering some of the burden (courtesy of the taxpayer) via tax/business rate reductions.
- Reality indicates that demand-depressing tax and interest rate increases are more likely (in the name of holding back inflation).
- Pragmatic suppliers are factoring these realities into trade strategies, hopefully?
