Financial wellbeing and consumer confidence in August 2022

Summary

• Consumer satisfaction with household income and standard of living has dropped significantly as households adjust to high inflation
• Consumer confidence remains very low, with confidence in current household finances dropping to the lowest level since the beginning of the Covid-19 crisis in March 2020.
• Household finances have largely remained steady over the summer, but the financial adjustment and missed payment rates remain at elevated levels. 6.8% of households missed a mortgage, rent, bill or credit payment in the last month

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Consumer satisfaction with income, savings and standard of living is falling

As the cost of living crisis continues, consumer satisfaction with their household’s income, level of savings and overall standard of living is declining sharply. 

Only just over half (55%) of people said they were happy with their household’s standard of living in August 2022, and nearly a quarter (23%) were dissatisfied, giving a net satisfaction level of +32.  This compares to +58 just a year ago, when 70% were satisfied with their standard of living and just 12% were dissatisfied. Those on low incomes (up to £21,000) were less likely to be satisfied with their household’s standard of living (41%).

This fall is unsurprising given that inflation is at a 40-year high and households are suffering from the fastest fall in real pay on record. Satisfaction with household income has fallen to +2, down from +30 a year ago, and satisfaction with household level of savings has dropped to -6 from +16 a year ago. 

After the first Covid-19 lockdown in March 2020, satisfaction across all of these measures increased dramatically. Lockdowns meant a forced reduction in consumer spending and incomes were supported by government initiatives such as the Job Retention Scheme, giving many consumers an increased ability to save. Satisfaction remained high throughout 2020 and much of 2021, but began to fall in late 2021, as people began to feel the effects of the cost of living crisis. 

Whilst satisfaction with household level of savings has fallen only to levels comparable to before the pandemic, satisfaction with households income and standard of living has fallen to levels lower than before the pandemic.

Consumer confidence remains very low

Measures of consumer confidence fell slightly in August, having improved somewhat in July. Mirroring the decline in satisfaction with standard of living, confidence in current household finances fell this month. Though 39% of consumers described their current household situation as good, 24% described it as poor, giving a net confidence level of +15. This compares to +36 just a year ago, and is the lowest seen since March 2020, just as the UK went into its first Covid-19 lockdown. 

Meanwhile, confidence in future household finances and the future of the economy remain very pessimistic, at -40 and -60, respectively.

Consumer finances remain under pressure

There was little change in measures of financial difficulty in August compared with the previous few months. Six in ten (59%) said that their household made at least one adjustment to cover essential spending such as utility bills, housing costs, groceries, school supplies and medicines in the last month. Adjustments include cutting back on essentials, dipping into savings or borrowing. This is in line with the level seen for the past several months, and much higher than seen before the cost of living crisis. Just a year ago, only 40% of households had made such an adjustment.

Meanwhile, the missed payment rate dropped slightly, though not significantly, to 6.8% of households having missed a mortgage, rent, bill or credit payment in the last month. Though in line with the level seen over the past few months, this is higher than the 4.5% who reported having missed a payment last August.

  Although stable for the past few months, measures of financial difficulty are considerably higher than a year ago, and could escalate further later this year if households have to bear the large predicted increases in energy prices. This is reflected in consumer concern levels, with 93% of consumers saying that they are worried about energy prices.