Sudden fall in consumer confidence as cost of living crisis bites

Inflation has risen to its highest level in nearly three decades because of a spike in the cost of a range of goods and services, from food and energy to furniture and clothes.

The mood among consumers about their finances has fallen to its lowest level since the first Covid-19 lockdown, according to a new survey.

Concerns about rising prices and the cost of living have pulled consumer sentiment down to -20 on an index tracked by PwC, the accountancy firm. This is a fall from +8 during the same period last year and is only just higher than the -26 reported at the start of the pandemic.

PwC said that there had been a “complete reversal” in consumer priorities compared with a year ago, when households were preparing to spend once lockdown restrictions were eased. The firm surveyed just over 2,000 people between March 19 and 21. It said that sentiment had declined across all age groups, with people preparing to spend less on eating out, buying clothes and going on holiday but bracing to spend more on groceries because the price of food was going up.

Lisa Hooker, consumer markets leader at PwC, said: “The shift in sentiment is both significant and sudden. Whilst there is still some post-Covid recovery, spending expectations on eating out and going out have plummeted as consumers look to tighten their belts as they face up to cost-of-living pressures.”

Separate research has warned that discretionary spending will fall by up to £850, or 19.5 per cent, for the least affluent households in 2022 and by an average of £430, or 6.5 per cent. This equates to a £12 billion hit to non-essential spending in 2022, according to the report by Retail Economics and HyperJar, the digital wallet and savings app.

Richard Lim, chief executive of Retail Economics, said: “We’re likely to see recessionary behaviours kick-in for many households, who will cut back on the nice-to-haves and will prioritise low costs to make their budgets stretch that little bit further.

“A more cost-conscious consumer will emerge in the coming months, looking to form new relationships with brands that can align to these new priorities.”