A glimpse into the future: Household spending in 2030
Published on 08 November 2013 0 comments
Since the onset of the financial crisis, low earnings growth and high inflation rates have put many UK households under considerable stress. In the 2007-12 period, real household disposable income grew at only around 0.6% p.a. compared to an average of 1.2% p.a. in the ten years to 2012. This pressure on real incomes has had important knock-on effects on household spending habits.
Analysis in our latest UK Economic Outlook report shows that, since 2007, spending on essential areas like housing, utilities and food has grown at the expense of discretionary spending on items such as furniture, restaurants and transport. Specifically:
- For the first time since 1963, more than 25% of household spending has gone towards utility bills (energy and water) and housing costs (actual and imputed rent plus maintenance and repairs);
- Spending on miscellaneous items, like financial services (e.g. credit card payments and insurance premiums), and on recreation and culture has dropped from around 26% to 21% of household spending since 2007.
Household spending in 2030
But what does the future hold for household spending patterns, especially given the brighter UK economic outlook? To answer this, we used our existing long-term consumer spending model to project how household could be spending their money in 2030. Table 1 below shows our projections for each spending category, based on total real household income growth averaging around 2% p.a. over the period to 2030.
Table 1: Historic and projected trends in share of UK household spending by category
|Spending category||Budget share in 1963 (%)||Budget share in 2012 (%)||Projected budget share in 2030 (%)|
|Alcohol and Tobacco||8.4||3.6||2.6|
Source: ONS for 1963 and 2012, PwC projections for 2030
The key message coming out of our baseline projection is that, as growth and consumption pick up, we expect spending patterns to be shaped by long-term structural trends rather than some of the cyclical variations we’ve been seeing in recent years. Specifically, we project that by 2030:
- Households will spend around 30% of their income on housing and utilities as the housing market picks;
- Alcohol, tobacco and food spending is projected to make up less than 10% of household spending;
- Spending on miscellaneous items like financial services is projected to recover again as households start borrowing again.
How are businesses responding to these changes?
Challenging economic conditions have given rise to so-called ‘smart’ consumers who look out for low cost deals, focus on minimizing waste and use the internet for an increasing proportion of their purchases. We’ve already seen businesses respond to these changes. Specifically:
- The British high street continues to change with high-street discounters (e.g. Poundland, 99p stores and Home Bargains) and specialised charity shops gaining prominence; and
- Traditional businesses investing heavily in e-commerce infrastructure to protect their revenue streams, but also needing to control costs by moving from a multi-channel strategy to a more integrated strategy that is fit for business in the digital age. Click here to find out more about Total Retail.
We expect that as the economy recovers, consumers will remain highly price-conscious as on-line retailers and high street discount stores continue to take an increasing share of the market. This will pose an on-going challenge for many traditional retailers to adapt to survive in this challenging competitive environment.
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