Inflation wipes out £2.3bn in non-essential income

Inflation wipes out £2.3bn in non-essential income
Photographer: Jason Alden/Bloomberg

Inflation wiped out around £2.3bn worth of income for non-essential items throughout April, with the UK’s least affluent households seeing levels of discretionary income plunge 12.3 per cent.

Last month, inflation rose to a 40-year high of 9 per cent. Since then, the Bank of England has said “there isn’t a lot” it can do to stop inflation peaking at 10 per cent, and that “apocalyptic” food prices are a “major worry” for the UK.

On average, the least affluent households became £59 a month poorer in April, according to research shared with FTAdviser by data insights firm Retail Economics and money app HyperJar.

This is compared to the most affluent households, which saw spare cash fall by just 1.4 per cent in April, equating to £61 less to spend on discretionary items per month.

For the least affluent households, inflation rates sit at 11.2 per cent across their spending, compared with 8.3 per cent for the UK’s most affluent families.

“The country is witnessing an enormous income shock with the least affluent families anchored at the epicentre,” said Retail Economics’ chief executive, Richard Lim.

“With inflation nearing double digits, life has turned extremely uncomfortable for many households. 

“The most disadvantaged families are facing genuine trade-offs between what essentials to buy. There’s only so much cutting back and shopping around that can be done with inflation reaching these levels.”  

One of the starkest changes identified in consumer behaviour has been in their grocery shopping habits, according to the research. 

Spending data from HyperJar suggests the share of grocery spend going to discounters such as Aldi and Lidl has grown by 1.8 percentage points since the start of the year.

Meanwhile, the Big Four - Tesco, Asda, Sainsbury’s and Morrisons - have seen the share of spend decline by 1.2 percentage points between January and May.

This shift in spending towards discounters, the research found, was most prominent across middle-aged (45-55) consumers.

Bank of England governor Andrew Bailey told MPs last week that with Ukraine being a significant exporter of grains such as barley, corn and wheat, “apocalyptic” food prices as a result of the at-war country’s current inability to export crops was “a major worry” for the UK.

The central bank anticipates inflation to average slightly over 10 per cent at its peak in the final quarter of 2022. 

“Many of us have never lived through a period of high inflation and it shows,” said HyperJar chief executive, Mat Megens.

“Experts from ministers and markets to the Bank of England are getting their cost-of-living predictions wrong, prices are rising, and salaries aren’t keeping up.

“Individuals can’t control this surround-sound of uncertainty, but we can control what we spend and where - and try to make the most of every penny.”