Pressure on Gen Z , Gen X spending is huge in UK

We may have become accustomed to UK interest rates staying high by the standards of the 21st century, but for those consumers who don’t remember the era of double-digit interest rates in the past, the current level feels far from normal and is a big brake on spending.

That’s according to consulting services firm RSM UK, which said that 64% and 82%, respectively, of Gen Z respondents said interest rates and the housing market will impact their spending in the next 12 months.

A survey of 2,000 consumers conducted on behalf of the firm shows Gen Z “are increasingly concerned about the economic climate, despite signs of hardship easing”.

It said the pressure on Gen Z spending is acute, with almost a third (29%) stating that they don’t have any monthly income left after paying for essentials, and almost a quarter (22%) saying they only have up to 20% left at the end of the month.

That said, older consumers are also feeling the pinch with RSM also saying 71% of consumers in total are curbing spending due to higher prices. And this jumps to 81% of Gen X respondents.

Robyn Duffy, senior analyst at RSM UK: “Despite news that inflation is back to the BoE target, consumers still consider higher prices to be the primary factor affecting non-essential spending over the next 12 months.” 

Gen X consumers were born between 1965 and 1980 so are at the age where we’d perhaps expect them to have more disposable income. But Duffy added that “with Gen X particularly feeling the pinch, the hangover from inflation’s peak in 2022 at 11% is likely to persist in the short-term, but sentiment will start to improve as economic stimulus washes through and consumers start to feel better off and ready to spend”.

Whether this comes fast enough for many businesses is open to question. The latest company failure figures from the government this week showed retail insolvencies jumping as lacklustre consumer demand took its toll. Wholesale and retail trade insolvencies increased 27% in April month on month and 30% year on year.

Gordon Thomson, restructuring partner at RSM UK, said: “The tough trading environment for the retail sector continues to drag on, resulting in an increase in insolvencies in April. As retailers grapple with high costs, lacklustre consumer demand and too many April showers, they were also hit with an increase in national minimum wage which may have been the final straw for some.

“However, with inflation easing, real wages growing, and interest rates set to come down, this bodes well for consumer confidence and sets the stage for an increase in consumer spending in the second half of the year. For those retailers that have managed to weather the storm thus far, there’s light at the end of the tunnel.

“We expect the current high levels of distress to decline later this year as retail sales improve. That said, retailers will be looking to the next government to ease the current headwinds faced by the industry, including reform of business rates and a U-turn on tax-free shopping.”