Inflation tips discretionary income into double-digit decline

Inflation tips discretionary income into double-digit decline
Ian Forsyth/Bloomberg

Inflation knocked off 10.6 per cent from UK households’ discretionary incomes in May as big financial shocks prompted a move from shorter to longer-term money habits.

Last month, inflation remained at its highest rate in 40 years, edging up to 9.1 per cent in May from 9 per cent in April.

Bank of England governor Andrew Bailey has said “there isn’t a lot” it can do to stop inflation peaking at 10 per cent, pointing to further cuts in consumer spending to come.

The average household saw non-essential income - cash left over after covering basic living costs - fall by £127 over the month, according to research shared with FTAdviser by data insights firm Retail Economics and money app HyperJar.

Compared with April, which saw inflation wipe off £2.3bn worth of income for non-essential items, May made an even further dent of £3.5bn.

This tipped what was a 9.5 per cent decline over into a 10.6 per cent decline.

“Typically, big financial shocks prompt a move from shorter to longer-term money habits,” said HyperJar chief executive, Mat Megens.

“We’re starting to think ahead, to plan for future pressure points like winter fuel and Christmas costs.”

Essential costs such as food continue to see some of the fastest price rises. Food and non-alcoholic beverage prices rose by 1.5 per cent between April and May 2022, according to the Office for National Statistics.

This is compared with a fall of 0.3 per cent in the same period a year ago.

Energy bills are also weighing on households. Despite the energy bill grant announced by the government in May, 92 per cent of UK households served by Retail Economics and HyperJar plan to reduce their energy consumption this autumn and winter by heating homes less.

“After families have paid for all their essentials, the amount of spare cash left over to spend on days out, socialising and other treats is shrinking at an astonishing rate,” said Retail Economics chief executive, Richard Lim.

“The impact on areas of the economy will begin to emerge as businesses struggle to cope with the combination of rising costs and weaker consumer demand, as conditions deteriorate further and the prospect of recession looms.”