According to new figures by the Office for National Statistics (ONS), the economic recovery that seemed so promising after Covid restrictions were lifted, has slowed down in April as the cost of living crisis hits.
Recent ONS statistics show, retail sales volumes in the UK fell by 0.5% in February and 1.4% in March. This considerable drop is due to consumers adapting their spending to the cost of living crisis.
As the crisis deepens from April, when the cap on household energy bills increased by 54% and the National Insurance Contributions went up by 1.25%, it is expected that consumers will continue to watch their spending.
This will further impact small UK businesses, who already feel forced to put up their prices to cope with rising costs. With only 29% of businesses being able to absorb higher costs.
How Consumers React To Cost Of Living Crisis
With household budgets squeezed by high energy prices, increased fuel costs, tax hikes and rising food prices, consumers have to consider carefully on what they spend their hard-earned cash.
ONS figures have shown, that 87% of adults have seen a rise in living costs in late March. According to a new survey by KPMG, the average household bills are expected to rise by £82.80 per month.
While two thirds of consumers are able to combat the cost of living crisis by using up savings, not everyone has the capacity to do so. And only one third of those lucky enough to have savings are still planning to buy the things they want this year, with a holiday being the most common bigger purchase planned.
Consumers Buying Less
Due to the high costs, 31% of consumers who replied to the KPMG survey have said that they have bought less so far this year. For these consumers, cost-cutting is the only way they can cope with the cost of living crisis.
So far in 2022, the cost-of-living squeeze has caused a third of the consumers we surveyed to cut back spending on the things they want, and offset their bills by dipping into their savings, where possible.Linda Ellett, UK Head of Consumer Markets, Retail and Leisure at KPMG
On the top spot of things not being bought as much is clothing, with 67%. For women, the figure rises to 75%. This is followed by eating out, with 65% of consumers spending less in this area.
Over half of consumers also mentioned takeaways and food and drink shopping as areas where they are spending less.
Spending on experiences such as going to the cinema has also fallen, by 47%. Consumers also save money by either delaying their holiday or booking a lower price, with 39% saying this is an area they spend less. 34% of consumers reported that they buy fewer beauty products or services.
Transport or vehicle use has been identified by 31% as an area where they save money. 26% of consumers have said they will save money on subscriptions such as TV or gift boxes.
This has been confirmed by Netflix, whose subscription numbers have fallen for the first time in a decade, as 1.5 million Brits cancelled their Netflix subscriptions to cope with the cost of living crisis.
However, only 18% of consumers have said they save money on fitness, such as going to the gym or sports clubs.
What This Change In Consumer Behaviour Means For Small Businesses
With consumers deciding carefully what they spend their money on to manage their budgets as the cost of living crisis bites, some sectors will suffer more than others.
The ONS reported that the biggest contribution to the 1.4% fall in retail sales in March came from non-store retailing. This includes market stalls and online stores, which have fallen by 7.9%.
Sales in food stores fell by 1.1% in March, as prices rose due to rising business costs and inflation. They now stand 1.4% below pre-pandemic levels.
The high petrol and diesel costs have caused automotive fuel sales to fall by 3.8% in March, as consumers try to limit their car use.
The proportion of online retail sales has also fallen by 26% in March 2022. However, this downward trend has been seen since February 2021. This is likely due to Covid restrictions easing and people being able to visit stores and shops again.
Retail sales fell back notably in March, with rises in the cost of living hitting consumers’ spending. Online sales were hit particularly hard due to lower levels of discretionary spending.Darren Morgan, Director of Economic Statistics at the ONS
However, sales for non-food stores rose by 1.3% in March, which is mainly due to growth in other non-food stores and household goods stores, such as DIY stores. Sales volumes for these rose by 2.9% and 2.6% respectively.
So, small UK businesses are facing an uphill struggle, with the cost of living crisis deterring customers to spend and rising business running costs forcing small business owners to put up their prices.