household-incomes

How consumer income affects costs and demand

• Disposable income is the money households have left after tax and essential bills (rent, council tax, basic utilities)

  • When disposable income rises, many goods feel cheaper

  • When it falls, buyers tend to reduce their spending, especially on non-essential products

UK consumer income trends

• The UK has relatively high levels of disposable income in comparison to other developed countries

  • Between 2021 and 2023, UK household disposable income fell by around 2%, as wage rises lagged behind high levels of inflation

  • From mid-2024, pay growth lifted wages for the first time in three years, leading to higher levels of disposable income

Consumer income and costs

• When average incomes in the economy increase, wage bills and some other costs that firms face can also increase

Reasons for increased costs when incomes rise

Consumer income and demand

• When incomes rise, demand usually grows for non-essential products

  • Overseas holidays

    • Since 2024, British citizens have started to plan more foreign trips as pay has increased

  • Premium gym and leisure memberships

    • Higher take-home pay lets consumers upgrade from basic gyms to chains like David Lloyd

  • Big-ticket electronics

    • Families replace TVs or phones sooner when they feel better off

  • Eating out

    • Restaurant bookings climb when wages rise at a higher rate than prices

• When incomes fall, demand often shifts to budget products

  • Discount groceries

    • Aldi and Lidl gained customers during the 2022–23 cost-of-living crisis, as households traded down

  • Own-label value ranges

    • Sales of the cheapest supermarket lines grew by 46% in 2022

  • Stay-at-home entertainment

    • Streaming and gaming offer cheap nights in comparison to cinema trips

  • Postponed big purchases

    • New car registrations and furniture sales fell by 3.2% in December 2023 when disposable income levels fell

The impact of incomes on demand