A tale of two cost-of-living crises: low-income people are buying less while high-income people are saving less in the face of rising prices – and one in 20 people are borrowing to maintain their standard of living
- About 50% of the richest two-fifths continued to buy things they always bought
- More than half of them put less money aside, while a quarter spent money
- One in 20 borrows to maintain their standard of living and one in 12 uses a salary increase
Low-income Britons are cutting back on spending to make ends meet, but wealthier households are ignoring rising prices and using their savings to maintain their way of life, according to new figures.
The Bank of England found that, when faced with the choice to spend more or cut back, around half of the richest two-fifths continued to buy the same amount of things they always bought – or more – despite the hikes of price.
They made this possible by putting less money aside in savings, the Bank said.
In contrast, almost half of the poorest people in the UK have reduced their purchases so that they are spending the same or less than before, with a quarter having reduced only some purchases.
To buy or not to buy? Affluent households who have decided to continue to buy what they have always financed this additional cost by saving less
The survey of 6,000 people in September found that overall 70% said the price of things they normally buy had risen.
But households are reacting in different ways to runaway inflation, which at 11.1% is the highest in 41 years, according to official figures.
Food prices have seen particularly strong increases, with UK food inflation hitting 12.4% in October, a new record high, according to the British Retail Consortium.
According to the Bank, low-income people have mainly tried to limit the impact of rising prices by reducing their purchases or switching to cheaper substitutes.
“Meanwhile, higher-income households continued to consume the same goods or increased their purchases and therefore spent more overall,” he added.
Those well-to-do households that spent more money generally financed this additional cost by saving less.
Fund for rainy days: a quarter of people dipped into their savings to maintain their lifestyle
More than half of them told the Bank of England they had put less money aside, while a quarter spent their savings.
About one in 12 households said a pay rise helped them with rising costs, but one in 20 said they were borrowing to maintain their standard of living.
“Overall, although the data suggests that saving has enabled many households – particularly those with higher incomes – to reduce the impact of rising costs on their spending, the overall decline in Real household incomes appear to be weighing on aggregate consumption,” the Bank said. said.
Making ends meet: Almost half of the UK’s poorest people have cut spending completely due to the rising cost of living
The extent to which households reduce their spending will be an important determinant of the slowdown in the UK economy.
The results reflect separate research by Hargreaves Lansdown, which found that higher-rate taxpayers were half as likely as base-rate taxpayers to have reduced non-essential expenses (15% versus 39%).
“High earners are determined to defy the miserable reality of rising prices and buy the things they’ve always bought,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.
“That means they’re less likely to suffer the short-term agony of sacrificing spending.”
“However, as a result, they reduce their savings, eat away at existing funds and accumulate debt, so they are poised to suffer more long-term chronic pain.”
Separate data showed that Britons are increasingly tapping into their overdraft and using buy-it-now, pay-later schemes in order to cope with the rising cost of living.