Inflation in the UK has reached record highs, giving consumers in the country less bang for their buck when purchasing essential items such as food. As Christmas approaches, this means people will have less money to spend on things that they want but do not necessarily need, according to Konstantinos Venetis, a senior economist at TS Lombard.
A recent YouGov survey on Christmas spending intentions conducted at the end of September 2022 showed that six in ten – or 60% – of people in the UK are planning to spend less on Christmas this year, directly as a result of the cost of living crisis. On the opposite side of the spectrum, 28% declared that they expect to spend as much as they normally do on Christmas.
When it comes to the intention to buy Christmas gifts this year, however, more than 65% of the consumers surveyed by GlobalData’s Christmas Intention 2022 survey stated that they intend to shop for gifts for adults, compared with 62% in 2021 and 56% in 2020, according to Zoe Mills, senior retail analyst at GlobalData.
“With inflation rife, it is also likely that spending will hold up better than volumes, with consumers not only trading down but buying less," she says. "We are also seeing more consumers stating that they are starting Christmas shopping earlier as they look to spread costs.”
All I want for Christmas is… sales
Whereas Christmas in 2021 represented a strong period in the UK as consumers were keen to embrace a festive period free of lockdowns or Covid-related restrictions, people are likely to be more cautious with their spending this year, according to Venetis.
Thus, consumers are likely to be on the lookout for bargains and sales, but “there is plenty of opportunity for high street retailers to entice spending in core categories such as gifting and decorations”, says Mills. She stresses that “promotional activities such as Black Friday and other discounting events will be critical to encouraging more spending as consumers will be conservative in their spending where possible and trading down where necessary, particularly to discounters such as B&M”.
However, Mills adds that according to the findings of the GlobalData report, “a smaller proportion of Christmas spending is expected to be allocated towards going out and partaking in leisure activities for Christmas”, with about 13% of the average Christmas budget going towards going out, compared with more than 15% in 2021.
“Pubs and restaurants have already stated that they are fearful of the future impact of inflation and as a way to cut costs trading down to a premium home-cooked meal is one way we expect consumers to behave this Christmas,” says Mills.
I saw three ships stuck in Felixstowe's container port
While the cost of living crisis and households’ purchasing power are likely to be the decisive factors in Christmas spending, problems with shipping and supply chains – a hangover from the Covid-19 pandemic – could also pour oil in the festive eggnog.
It is difficult to predict what the situation will be with shipping in the run-up to Christmas, according to Venetis, as some studies do show that things are slowly going back to normal.
However, in the UK there remains significant pressure on supply chains, according to Mills, who says: “Amid strikes at key location Felixstowe and fulfilment provider Royal Mail, retailers are very aware of supply chain woes this Christmas.”
Royal Mail staff have already announced strikes during key retail periods such as Black Friday and Cyber Monday.
Mills does point out that the benefit of consumers spreading their Christmas spending over these one-off sales events “will ease some of the pressure on supply chains, though, of course, the ability to then replenish these lines will be crucial”.
For now, it looks as though consumers in the UK, as in many countries, will be tightening their belts this Christmas, and the Bank of England's grim warning of a long-lasting recession as it raised interest rates on 3 November will have done little to prise open consumer purses further. A Dickensian Christmas may well be on the cards for many Brits.