Of those planning to cut back, the research also showed that more than a quarter (28%) intend to do so across all areas of their spending, and worryingly for retailers and the wider economy, 41% of consumers expect the current squeeze on living standards to impact their spending habits until at least the end of 2023.
It is also reported that the typical UK household is set to cut back £887 of their discretionary spending through to April 2023, based on the study’s economic modelling. Across all households, the cost of living crisis is forecasted to wipe out £24.9bn of discretionary spending across the economy during this financial year.
Seeing their budgets squeezed, many consumers will adopt “recessionary behaviours”, according to the study, by trading down, shopping less or sacrificing purchases altogether. One in two shoppers say they will switch to cheaper brands or retailers to combat cost pressures, while a similar proportion (43%) plan to make fewer non-essential shopping trips.
Loyalty will also emerge as a key battleground for retailers and brands as more than a third (36%) of consumers are reportedly looking to save by making better use of loyalty schemes.
The report also found that the same percentage of UK households (36%) are ‘financially distressed’ and plan to cut back across most, if not all, of their non-essential spending. This is said to be a decision taken out of necessity, as low incomes and high debt levels leave little room for these households to manage rising living costs.
Furthermore, the study found that only 14% of households are ‘financially immune’ with no plans to cut back their spending.
Groceries, fashion, and restaurants are reportedly the top three areas that UK consumers will cut back on, according to the research.
For most consumers, cutting back on the weekly food shop will involve switching to cheaper private-label brands or discounters (52%), using loyalty schemes and vouchers more often (40%), and buying more in bulk (32%).
Among non-essentials, clothing and footwear is at the top of consumers’ cut back priorities, with almost half (47%) of UK households planning to reduce their spending on fashion. It is reported that the average household expects to cut back nearly 11% (£137) of their annual clothing and footwear spending.
The study also found that three in five (58%) people between 18-24 years of age plan to cut back on fashion purchases. This is reportedly the most of any other age group.
Furthermore, younger generations will also lead the cut back in restaurants and hospitality, with Gen Z twice as likely to cut back on going out than retired Boomers. The typical UK household is expected to cut back 9% of their spending on restaurants and hospitality, putting £8.5 billion of trade at risk across the industry.
Nicola Sartori, head of M&A retail and consumer at Grant Thornton UK LLP, said: “Retail and consumer-facing businesses are facing significant challenges as surging inflation and geopolitical instability herald the arrival of the ‘Cut Back Economy’.
“Businesses will need to adapt their propositions to differentiate themselves from the competition and maintain relevancy as a more cost-conscious consumer emerges. Our research identifies key areas that retailers and consumer-facing businesses can focus on, and invest in, to help mitigate the impact of the ‘Cut Back Economy’.”
Richard Lim, CEO at Retail Economics, said: “Consumers are experiencing the tightest squeeze on disposable incomes for decades. Faced with rapid inflation, rising interest rates, and higher taxes, household finances are being tested from all angles.
“Against this more cautious consumer backdrop, retailers and brands that fail to meet the needs of their customers will quickly be left exposed. Customer-centricity has always been the recipe for success, but as the cost of living crisis intensifies, the requirement to demonstrate this becomes more pressing.”