Cost of living rise spells headaches for brands

It’s not yet here, but we have felt the beginnings of inflation nip at our wallets; from April, tax increases, a rise in the energy price cap, and higher prices all round could lead to an event that some experts liken to a recession in what should be a time of growth. Brands need to be ready.

Why it matters

While it’s not technically a recession yet, when people have less money to spend it’s likely that they will cut brands out first. This could make it a tough time for firms operating in the UK.

What’s going on

As the FT explains, there are three prongs to the problem:

• A cap on energy bills is due to rise in April, with some estimates pointing to a 50% increase. In short, household energy bills that had been around £1200 could rocket to around £2000. As ever, the poor will suffer the hardest, but any categories that rely on discretionary spending are likely to feel effects right up to the highest earners.
• Tax increases. Employee national insurance rises will hit take-home pay.
• Inflation could jump to 6.8% this April versus 2021: way higher than wages are growing.

But this was supposed to be the great recovery?

Yes, it was. Following the adaptability that the marketing profession – and business more widely – had to show during the tougher lockdowns of the pandemic, economic shocks of a global and also distinctly national flavour will continue to ask more difficult questions. For the most up to date thinking on advertising in a recession, check out WARC’s guide here.

Key quote

“The combination of substantial tax increases and big increases in prices, particularly energy prices, will be a larger shock for households on average earnings than anything at least since the financial crisis and possibly for a long time before that” – Paul Johnson, director at the Institute of Fiscal Studies, speaking to the Financial Times.

Sourced from the FT, WARC