The study finds the current “cut back economy” persisting as consumers actively seek to curb non-essential expenditure in a bid to ease personal financial stress.

Over the two-year period from October 2021 to May 2023, the escalating cost of food, energy and other daily necessities has already cost UK households a staggering £50bn in lost disposable income, owing to wages not keeping pace. A further £15bn in spending power erosion is anticipated before there is a growth turnaround.

The impact of the cost of living crisis is more expansive due to swiftly increasing interest rates, bringing even middle and higher-income households into the fold. These demographics are expecting a considerable rise in mortgage repayments over the coming year.

The study found that a significant 88% of households intend to cut back their spending or delay or cancel purchases in the current financial year through to April 2024. The proportion of households intending to cut back across most, if not all, areas of their spending has surged to 65% from 52% a year ago. This increase is primarily driven by middle and higher-income households feeling the impact of higher interest rates and reduced savings.

Nearly 38% of households are categorised as “financially distressed”, an increase from the previous year’s 36%. This group is resorting to substantial cutbacks in non-essential spending due to low income or high debt levels.

A further 28% are “squeezed spenders” who prefer to borrow, use savings, or opt for buy now pay later schemes rather than restrict their spending. The study also showed a decline in the percentage of “financially immune” households, who have no plans to cut back their spending, to 12% from 14%.

The research revealed many consumers adopting recession-like behaviours despite the UK avoiding a technical recession. Over half of the consumers are cutting back on non-essential shopping, and a third have changed their usual shopping habits, including opting for cheaper brands or retailers. There’s also been a marked increase in the number of people cutting back on dining out and other leisure activities.

In terms of spending priorities, essentials such as groceries, pet care, and personal care are still in favour. However, the hospitality sector is bearing the brunt of the cutbacks, particularly dining out and takeaway options. Holidays, on the other hand, have emerged as a top priority among discretionary spending categories.