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Consumer confidence and financial wellbeing in January 2022

Summary

  • There was a large increase in reported levels of financial difficulty in January 2022 as 9.1% of people said they had missed or defaulted on a payment in the past month.

  • Consumers are adjusting their behaviour in response to the rising cost of living. 51% of people told us they had been putting the heating on less due to energy price rises.

  • Confidence in future household finances dropped to -21 this month, from -5 in December. The lowest it has been since April 2020, near the start of the pandemic.

Financial difficulty levels rise as pressure on households increases

The ‘cost of living crisis’ is building with expectations of eye-watering price rises for energy and increases in the price of other goods in the coming months. However, even with worse still to come, the Which? consumer insight tracker shows high levels of financial difficulty already among UK consumers.

One in eleven (9.1%) of people reported having missed or defaulted on at least one mortgage, rent, loan, credit card or bill payment in the last month, compared to 6.1% in December 2021. Missed payments tend to be more common in January, but the rate is higher than the 7.9% in January last year and reflects that the missed payment rate has been increasing, albeit erratically, over the past eighteen months.

Missed payment rates were much higher among those on lower incomes - households with an income under £21,000 reported a default rate of 14%. Furthermore, of the just over 200 universal credit recipients in the sample, 28% reported having missed or defaulted on a payment in the last month.

However, while financial hardship is most acute for those on low incomes, the impact is widespread. Half (49%) of consumers said they had made one of a number of adjustments to cover essential spending in the last month (e.g. dipping into savings, borrowing from friends and family, using a loan or overdraft). This is an increase on the 42% who had done so last month, and the 41% at this time last year. 

Cutting down spending on essentials increased the most - 27% of people said they had done this, up from 19% last month. A quarter of all respondents (26%) had taken money from a savings account, compared to 22% last month.

Consumers are changing behaviours to offset rising prices

The rising incidence of financial difficulty reflects that, even though the worst of the cost of living squeeze is likely yet to come, many consumers are already experiencing higher food and energy prices. The majority of respondents (58%) said they had recently been affected by increased food prices, and 56% had been affected by energy price rises. These are the most commonly experienced price increases, but just under a fifth (17%) reported a recent increase in their housing costs, and the same proportion reported an increase in the price they pay for broadband and mobile.

These price increases are pushing many consumers to make changes to their behaviour to limit the impact. Half (51%) of consumers said they had been putting the heating on less due to energy price rises, and nearly as many (46%) had reduced their usage of lights and/or appliances around the home. Only a quarter reported not taking any such measure in response to increasing energy costs.

Adjustments to behaviour do not stop with energy consumption - many consumers who had experienced rising food prices had made adjustments as a result. Consumers reported buying cheaper products, shopping around in different stores or buying extra items when on promotion. Some reported taking more drastic measures, with one in ten (10%) saying they had skipped meals and 9% prioritising meals for other family members. 3% had used a food bank. 

Consumers shared some of the measures they had taken to cope with price increases…

Confidence in household finances falters as the cost of living rises

Inevitably, the current and predicted price rises are impacting consumer confidence.  Confidence in future household finances fell sharply in January. 41% of consumers thought that the financial situation of their household would worsen over the next 12 months, whilst 18% thought it would get better, giving a net confidence level of -23. This is a significant drop from the -5 seen last month, and the lowest observed since April 2020, in the middle of the first Covid-19 lockdown. 

When asked why they believed their situation would worsen, consumers mentioned increases in the prices of many goods and services, particularly energy and food. More specifically, many commented that wages (or pensions for retirees) are not increasing at a sufficient rate to offset inflation, putting significant financial pressure on many consumers who are concerned that they cannot withstand further price increases.

People’s confidence in their current household situation and in the future of the economy remained more stable, but the latter is still firmly in the negative, having fallen considerably in the second half of 2021.

Inflation rates were again commonly cited as a reason for thinking the wider economy would worsen over the next year, while Brexit and the long term effects of Covid-19 restrictions were also frequently mentioned. Those who thought the economy would improve over the next year most frequently gave the reason that the situation regarding Covid-19 would improve in the near future as the Omicron wave peak passes, but it appears that for the first time since the start of the pandemic sentiment about the direct impact of Covid-19 is being replaced by wider economic concerns as the primary driver of consumer confidence.

Contact us

If you have any questions or would like to find out more, please email Sophie Beesley at consumerinsight@which.co.uk

Published on 28.01.22

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