Brits increasingly embracing thrift as Brexit looms large and inflation eats into income

  • Median UK household has £1,029 left each month after paying for essentials required to play a full role in modern society
  • Seven in ten UK households are worried about the impact of rising inflation and the impact it will have on their disposable income in next twelve months
  • Around half of Brits planning to make savings on high street shopping, household bills, and many are looking to bolster their incomes by selling items on eBay, working longer hours or taking a second job

The latest Disposable Income Index (DII) published today by savings and ISA provider Scottish Friendly has revealed that seven in ten UK households (70%) are worried about the impact rising inflation will have on their disposable household income in the next twelve months. Meanwhile around half (46%) are concerned about the financial impact of triggering Article 50 on their family’s finances and 1 in 4 (25%) are worried that leaving the EU will have an impact on their job.

The quarterly report has been compiled in conjunction with leading think-tank the Social Market Foundation and it shows that the median UK household has £1,029 left each month after paying for absolute essentials of housing, energy, water and a broader basket of goods including groceries, transport, childcare and broadband internet. These goods are required to play a full role in modern society. The money left at the end of the month is set aside for other necessary items like clothing, furniture and savings as well as luxuries like holidays.

In the context of these economic concerns, around half (46%) of households are planning to cut back on spending with half of those (53%) saying they need extra money to cope with the cost of day to day living and 1 in 5 (21%) hoping to pay down existing debts. Households are also taking, or plan to take, a wide range of steps to reduce expenditure. Those planning to cut back intend to purchase cheaper groceries (67%), spend less on leisure and going out (57%), spend less on treats such as coffees (55%), look to get better deals on energy suppliers (36%) and are intending on going on cheaper holidays or not holidaying at all (36%).

Interestingly Brits are also seeking to bolster income from alternate sources as inflation eats into the pound in their pocket and uncertainty around the economy persists. One in five (22%) will look to sell items on e-commerce sites such as eBay to raise extra cash while one in six (17%) are planning to work longer hours, one in seven (14%) will try to take on a second job to meet any shortfall and 7% intend to ask their current employer for a pay rise.

Calum Bennie, savings expert at Scottish Friendly, said:

“Our latest index shows that around half of Brits are currently tryomy it  holds its breath collectively to see what the impact of triggering Article 50 and rising inflation will have on tholding their breath and tightening their belts. They are expecting a bumpy ride thanks to the twin headwinds of Article 50 uncertainty and rising inflation and those households are proactively taking steps to ensure they are prepared for any outcome. It seems as though they are learning lessons from previous generations in times of uncertainty and are embracing a thrifty approach to spending or planning to find alternative ways to boost their income.”    

Nigel Keohane Research Director at Social Market Foundation says

 “The latest edition of the Disposable Income Index reveals a mix of measures being adopted by UK households to manage their budgets. With inflation forecast to grow through 2017 into 2018, households are concerned about the prospects of rising prices. Many are taking proactive steps to reduce their outgoings, especially reducing the ongoing costs of day-to-day expenses. Some are also looking to bolster their incomes by taking second jobs or selling items on eBay. In the context of uncertain times ahead, many are using any money they save to pay down debts or build up savings.”

Data appendix:

  Income after housing costs Income after essentials Proportion spending more than income on housing costs Proportion spending more than income on essential costs
REGION
Scotland £1,375.00 £1,038.00 7.74% 12.90%
Northern Ireland £1,393.50 £1,046.92 11.43% 20.00%
Wales £1,439.33 £1,056.33 5.81% 8.14%
South West £1,268.83 £940.17 6.04% 14.29%
West Midlands £1,319.75 £1,057.79 11.24% 15.17%
North West £1,429.25 £1,101.83 6.12% 9.80%
North East £1,289.42 £985.79 2.33% 6.98%
Yorkshire £1,371.25 £994.17 5.62% 12.36%
East Midlands £1,391.67 £1,102.83 7.84% 10.46%
East England £1,268.17 £956.67 4.60% 9.77%
South East £1,340.17 £984.33 8.47% 14.58%
London £1,574.50 £1,185.00 11.59% 15.88%
AGE GROUP
18-24 £995.58 £741.58 16.67% 23.75%
25-34 £1,199.50 £859.00 11.53% 17.45%
35-44 £1,274.50 £844.67 6.67% 14.62%
45-54 £1,294.25 £970.83 6.27% 10.63%
55-64 £1,538.00 £1,205.08 5.26% 8.98%
65+ £1,830.67 £1,526.50 2.23% 3.90%
EMPLOYMENT STATUS
Employed full-time £1,447.00 £1,047.00 7.07% 12.69%
Employed part-time £1,234.33 £909.17 7.82% 13.95%
Self-employed £1,307.00 £994.50 6.94% 11.11%
£1,092.00 £811.83 11.11% 16.46%
Student £715.54 £464.25 22.73% 30.91%
Retired £1,795.92 £1,462.38 1.87% 4.01%
UK MEDIAN
  £1,368.25 £1,028.54 7.6% 12.6%

About the Disposable Income Index

This quarterly report is compiled along with leading think-tank the Social Market Foundation and provides a unique insight into the financial health of the UK population. It analyses consumer sentiment, current economic data and trends to chart UK consumers’ saving and spending habits and the consequent impact on disposable income.

For more information visit http://www.scottishfriendly.co.uk/my-insights

Methodology

The Scottish Friendly Disposable Income Index is based on a quarterly online nationally-representative survey of 2,000 UK adults, carried out by 3Gem. Survey data was collected between 17th and 25th February 2017.

Within the survey, respondents are asked for details of four components of income:

  • Post-tax income from work
  • Income from benefits or tax credits
  • Income from investments
  • Income from private or occupational pensions

In each case, respondents are asked for monthly data as this is basis on which most income will be paid. Where reasonable, they are prompted to think of sources of this information, for example pay slips.

These data are aggregated to provide an accurate picture of income at a household level. Asking questions about specific components of income allows us to build a more complete picture.

Respondents are then asked about essential bills, including:

  • Housing costs: rent or mortgage costs
  • Council tax
  • Water
  • Gas, electricity, solid fuel (including a dual fuel option)
  • Buildings & contents insurance
  • Ground rent and service charges

We ask both how often bills are paid, and how much they are, allowing respondents to provide information in the form that is most familiar to them and removing as far as possible the need for bills to be estimated. The data is then cleaned to provide a monthly estimate of total essential costs for each household.

We also consider a set of costs which are not absolutely essential for human life, but are nonetheless necessary to play a full and active role in modern society, including:

  • Groceries
  • Broadband or other internet services, telephone calls and television subscriptions
  • Mobile phone bills
  • Childcare
  • Transport (petrol, public transport fares)

These costs are subtracted from reported income at each household, to create an estimate of disposable and discretionary income – here defined as income after housing costs, and after a basket of essentials needed to participate fully in modern society are purchased.

Data is not equivalised for household size, but we do check median household size across sub-groups to ensure any significant differences are flagged to the reader.

[i] UK consumer price inflation: Jan 2017 Price indices, percentage changes and weights for the different measures of consumer price inflation (2017)

[ii] Bank of England, Inflation Report, February2017 (2017)

[iii] ONS, Analysis of real earnings: October 2016 Analyses of the Average Weekly Earnings (AWE) figures (2016)