As predicted, inflation has risen once again. Figures out today show that inflation has risen from 5.1% in November to 5.4% in December. There are no signs that the rises will be stopping imminently. This is a near 30-year high.
Rising inflation is causing a cost of living crisis which is going to affect the entire economy. Fenestration is not excluded from this and has to be aware of the risks to the sector this year if inflation remains stubbornly high.
Inflation causing a rethink
It is widely expected that inflation will rise above 6% this quarter. We’re almost there already. Back in the world of fenestration, we have resumed the year where we left off, with numerous letters of price increases from all corners of the sector, meaning the cost of new windows and doors in 2022 is going to be higher than in 2021. Until supply chains stabilise and demand drops in some significant way, I cannot foresee prices levelling off. And that goes for most areas of the economy and not just fenestration.
The other issue to contend with nationally is that the pace of wage rises is not keeping up with inflation. According to the latest ONS figures, weekly wage growth to October 2021 was 4.3%. In normal circumstances, 4.3% is a healthy jump up and would put tangible money in people’s pockets. However, the reality is that with inflation of 5.4%, people are finding 1.1% less in their pocket, which reduces their spending power. With inflation due to rise above 6%, there will be even less money for people to spend, as households prioritise spending on food, gas, electricity, clothes and other essentials.
Here lies the problem for big-ticket sectors such as ours. Middle-income families, where we get a large chunk of our revenue from, including lower-income earners as well, are likely to become more cautious about spending larger amounts of money whilst they see their living costs rise fast and their wages fall back in real terms. Does a house full of new windows and doors look that attractive when you’re struggling to pay your gas bills to stay warm?
Inflation and the cost of living, I believe, is likely to cause a significant portion of people to rethink their home improvement plans in the coming months. If this scenario plays out, it’s likely that Q1 of this year may not be as frenzied on the sales front as it was in 2021. Some may welcome that as a chance to ease some of the working pressure and rebuild stocks and service levels. But remember, as an industry we have grown and expanded the workforce. We have to try to maintain that level of business to keep that momentum going.
UK fenestration needs to be very aware of the risks inflation will bring and how it will impact public spending habits. We know all too well the effects of inflation, as we have all endured 18 months of near-constant price increases from all parts of the sector.
But inflation is a double-edged sword, and whilst there are direct impacts on us as a sector, the effects it will have on the public will also ripple through our sector too. Saving for home improvements becomes harder when there is less money to actually save. It creates a more cautious economy, with people spending only on what they think they need to, rather than on the items they would like. In our case, new windows and doors or a new glazed extension.
However, where there are challenges there are also opportunities. For example, hitting the right demographics is going to be key this year. Those families and individuals who are more well-off than others will continue to spend their money as they always have done. Despite inflation over 6%, higher earners will likely not feel the impact of that enough to make them change their minds. Installers should be looking towards the higher end of the market to attract those types of clients.
House-movers are also a good demographic to appeal to. People who have just sold their house and moved to a new one are likely to be sat on a healthy profit thanks to rapidly rising house prices. Many will be moving into houses that require home improvements, which will likely include new windows and doors, and perhaps additional living spaces. Installers should be looking to appeal to movers as their spending power will be relatively healthy after having just sold a house.
I do not believe 2022 will be the same frenetic year of selling as 2021. The success of this year will depend on how we navigate inflation and continue to be an appealing part of the economy.
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