Insights we’ve learned about the rising cost-of-living

July 2023

We take a timely look at the rising cost-of-living in our new webinar, and how it’s affecting people’s spending and saving habits in unexpected ways. 

Sharp increases in the cost-of-living arrived on the back of the occupation of Ukraine, quickly following on from the covid-19 pandemic.  

Economic and geopolitical pressures combined to drive inflation up¹ to levels not seen in a generation, resulting in rapid increases in energy costs and food prices. 

While energy costs have thankfully come down (and we have less need for heating in summer) food prices overall are much higher than a year ago, although the rate at which they are going up has slowed. The Bank of England has been attempting to bring stubborn inflation under control by raising interest rates which can be good news for savers – but increases mortgage repayments for those not on fixed-rate deals. 

We’ve been looking at what the rising cost-of-living could mean for members by looking at our unique insights into spending and savings patterns across Lloyds Banking Group’s huge customer base. 

The rising cost-of-living affects people differently and is very nuanced. 

Bigger earners often have better ability to cope; while younger people on lower wages can find it more of a struggle, perhaps as they have sky-high rents or expensive mortgages. Parents can be financially constrained by nursery or university fees on top of their outgoings, with wage increases lagging inflation and little spare to cope with rocketing prices. Increasing a mortgage by a couple of hundred pounds a month can be just too much of a stretch. 

People are shopping smarter during the cost-of-living crisis

The past year has seen many people change their buying habits, shifting at least some of their weekly food shopping to the cheaper, big-name discount supermarkets. Changing their Lurpak for the remarkably similar budget brands Danpak or Nordpak, for example, saves several pounds on one item of butter alone. Shoppers have become smarter and more careful, only visiting the main, established supermarkets for the brands and goods they can only get there.²

With 3.7m people cancelling subscriptions, just under half of them streaming services, in their Lloyds Bank app, the trend of cutting back on unnecessary spending shows no sign of changing any time soon. 

Taking on too much debt 

As BBC’s MoneyBox programme reported (27 May 2023), one worrying trend shows some younger people risking getting into financial trouble by taking on too many “buy now, pay later” loans. Anecdotally, we’ve also heard of people using these loans for things like home fuel where energy providers offer it. This isn’t what these payment systems were designed to do and could tip some people into financial distress and vulnerability. 

Saving into pensions 

Perhaps surprisingly, we’re not seeing a reduction in pension contributions or any increase in auto enrolment opt-outs. In fact, Scottish Widows saw the usual large annual increase in pension contributions just before tax-year end in April 2023, showing people weren’t cutting back on saving. Perhaps the ongoing freeze on tax thresholds may have contributed to some people paying extra into their pensions so that they are able to keep more of their income from being taxed at a higher rate. 

Pension flexibility helps 

With the ability to start taking their pension savings from the age of 55, there are people who have taken the opportunity to pay off, or pay down, mortgages, sometimes using their tax-free cash. It’s not a new trend as such but it could be one that grows.  

Consumer confidence is up – mostly 

Despite ongoing cost-of-living pressures, the GfK consumer confidence measure has been improving this year, showing a glimmer of optimism in how consumers feel about their personal finances.  

April saw the GfK Consumer Index rise for the third month in a row and record its best figure in over a year.³  

Yet our recent poll on Scottish Widows’ Workplace LinkedIn tells a different story with the majority of those taking part still fearing the worst is to come. 

What do these insights tell us about members? Watch the full webinar here to find out more about the impact of the rising cost-of-living.

¹Inflation and price indices - Office for National Statistics

² Discount supermarket shopping up almost a fifth in 2022 (PDF, 183KB) 

³Consumer confidence