This week, AJ Bell released the results of a recent online survey, which showed that four in ten (40%) of the UK’s consumers think their personal finances won’t improve in 2024.
The online survey was carried out by Opinium in December on behalf of AJ Bell and included 2,000 participants.
“Consumers aren’t banking on a miraculous boost to their personal finances in 2024, with four in ten expecting no improvement from a pretty grim 2022,” said Laith Khalaf, head of investment analysis at AJ Bell.
Despite rising 4.7% in the 12 months to October 2023, “inflation is now falling away, and it’s widely thought that interest rates have peaked, but it’s unlikely we’ve hit rock bottom for consumer finances,” said Laith Khalaf.
“That’s because while inflation is cooling, it’s still building on previous double-digit levels. Two years on from the first rate hike from the Bank of England, Brits are also digging in for the long haul on interest rates,” he added.
Khalaf further noted that while markets are eagerly anticipating upcoming interest rate cuts, consumers remain unconvinced, with only one in five expecting interest rates to fall by the end of the next year.
When it comes to personal and household-based spending, nearly 75% of individuals have reported adjusting their lifestyles in reaction to increased inflation and interest rates.
The data highlighted that about 40% have reduced their usage of gas and electricity. And 27% have curtailed holiday spending, while 25% have shifted to a more budget-friendly supermarket, and 17% have cancelled subscriptions like streaming or gym memberships.
“Clearly, there’s a lot of belt-tightening and trading down going on, which has a knock-on effect on the UK economy. UK growth projections for 2024 are pretty anaemic, and there has to be a wide margin for forecast error given the exceptional change in the interest rate environment. Changes to working patterns were also seen among the participants,” stated Khalaf.
This further suggests that “consumers are rightly holding on to their investments for the long term where possible, though this figure is probably also reflective of the fact that fewer people hold investments compared to cash accounts,” he added.
Additionally, “In pensions, only 4% have cut back on contributions, no doubt because reducing payments also means giving up tax relief and, in many cases, employer contributions too. However, just over one in five now expects to retire later as a result of the current economic situation.”.
A small number of individuals have sold investments or reduced pension contributions, considering the severity of the financial crisis affecting consumers. Specifically, only 5% have sold investments, a figure considerably lower than the 25% who have drawn from their cash savings.
Nonetheless, “the good news is that wages are still growing, but those extra pennies are also being eaten by bigger mortgage payments and higher taxes. We’re only part of the way through the real effects of the huge repricing in mortgage rates, and the popularity of fixed rates in the last few years means we can expect considerable pain from higher housing costs in 2024 and beyond,” further stated Laith Khalaf.
“Meanwhile, over the next five years, the tax burden is forecast to rise to its highest level since the Second World War. With income tax and other thresholds frozen, or in some cases, cut, the taxman is going to be a ravenous extra mouth to feed for consumers,” he added.