Households are facing substantially higher costs in the goods and services they usually buy. Prices for consumers have increased by around 11% over the past year. They face a choice between spending more money to buy the same things they did before, or cutting back on some purchases. The extent to which households cut consumption will be an important determinant of how much the UK economy slows down.
Surveys of households can help to evaluate this. The Bank of England conducts a biannual household survey with NMG Consulting to obtain data on households’ financial circumstances and their economic expectations. The most recent wave of the NMG survey was conducted between 30 August and 17 September 2022. In this survey, more than 70% of respondents have experienced an increase in the costs of goods and services they normally purchase over the past six months.
Households across the income distribution are responding differently to rising costs. Lower-income households have mostly tried to limit the rise in their expenditure by reducing the amount of goods and services they buy or by switching towards cheaper substitutes. Meanwhile, higher-income households have continued to consume the same goods or increased their purchases and have therefore spent more overall (Chart A).
Chart A: Lower-income households were more likely to be spending less given the increase in the cost of living (a)
- Sources: Bank of England, NMG Consulting and Bank calculations.
- (a) Share of respondents answering how their total spending has been affected by the increase in the cost of living over the past six months. The survey was conducted 30 August to 17 September 2022, with 4,336 responses to this question. Excludes those who responded ‘Don’t know’.
Households who have spent more money have generally funded this extra cost by saving less. Over half of respondents who have spent more have put aside fewer savings from their income each month, and a quarter drew on existing savings. About one in 12 households said that a pay rise has helped them to fund higher expenditure, while around 5% of households stated that they have increased borrowing to spend more (Chart B).
Chart B: Households who have increased spending have predominantly funded this by saving less (a)
Overall, although the data suggest that savings have enabled many households – particularly those with higher incomes – reduce the impact of higher costs on their expenditure, the overall decline in households’ real incomes does appear to be weighing on aggregate consumption (see Section 2.3 of the November 2022 Monetary Policy Report).
This post was prepared with the help of Christoph Herler and James Tasker.
This analysis was presented to the Monetary Policy Committee in October 2022.
We have published Bank of England/NMG household survey data from 2004 to 2022.
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