Cost of living – Crunching the numbers

Recent news that Millennials are using notes and coins to help them budget against the cost of living explains why cash use rose last year – especially in the UK – according to our annual analysis of payments across Europe.

Cost of living – Crunching the numbers

However, fresh data from a range of sources highlights the longer-term impacts recent high inflation is having on British consumers’ spending patterns.

Holding steady – for now

New research from ClearScore says the average UK bank balance has remained steady in the past year despite rising costs, up 9 percent from an average of £1232.77 in January 2022 to £1243.06 in January 2023.

However, over half (55 percent) of UK consumers expect their financial situation to worsen over the next 12 months.

“55% of UK consumers expect their financial situation to worsen next year.”

The number of people using overdraft facilities also remained steady over the period, while just under half of those surveyed said they would be cutting back on non-essential spending in the next year.

More telling signals can be found in the February 2022 data from UK Finance, which reveals that spending on credit cards is now growing as fast as debit card spending.

For many years, debit spending from current accounts has outstripped credit.

What’s more, consumers are paying for bigger-ticket items with their credit cards compared to a year ago, and balances are rising.

These are clear signs that a debt storm is imminent for UK consumers – especially if interest rates continue to rise, as looks likely.

“UK consumers are spending more on credit cards – and balances are rising.”

According to UK Finance, there were 355.1 million credit card transactions in November, 0.3 per cent more than a year ago.

Total spend of £19.6 billion was 5.3 per cent higher than November 2021.

Outstanding balances on credit card accounts have grown by 9.4 per cent over the twelve months to November and 50.9 per cent of outstanding balances incurred interest compared to 52.9 per cent twelve months ago.

Gift more, spend less?

Responding to people’s need to pay for the basics, it looks as though more gift givers are resorting to giving relatives and friends money, rather than more decorative or “fun” items.

Fiserv say 58 percent of UK consumers purchased gift cards in 2022, with one in five saying they use gift cards to help counteract higher prices, and a similar number saying inflation is forcing them to use gift cards to purchase necessities.

Retailers often promote gift card use via multi-purchase deals, explaining why they are increasing in popularity as presents – recipients get more value out of a gift card compared to the cash equivalent.

PCM SAYS

With food price inflation at 17 percent in the UK – and higher than that figure in half of Europe’s main economies such as Germany – the UK will not be alone in facing a looming rise in the use of credit facilities.

Increasing interest rates to combat inflation will temper demand, but little can be done about the price of necessities.

In this context, news last month that the FCA is to regulate Buy-Now-Pay-Later (BNPL) is most welcome.

For some time, Payments Cards & Mobile has been warning that this segment, which is now worth more than £2 billion annually, represented a huge risk to consumer finances and the FCA’s new approach should help to provide some protections.

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