Thursday 3rd February was the day the cost of living become considerably more expensive for millions of households up and down the UK. The cost of living crisis is real and it’s starting to bite hard.
Whether you believe it or not, external economic factors like this have a major influence on sectors like ours. It’s important to understand what is happening, who it is affecting, how it’s affecting them and what our industry needs to be doing about it.
Everything is going up
It has felt for a while now that the cost of pretty much everything has been going up for a while. For us in UK fenestration, we have felt that pretty much since we opened back up in May 2020. From that point, we have struggled to keep up with much higher demand than expected, which has caused great strain on supply chains which in turn has forced up prices in a way no one has ever seen. In some cases, raw material prices are comfortably over 100% higher than pre-pandemic levels.
In the wider economy, it has been the cost of living that has been putting financial pressure on almost everyone. Inflation is rising the fastest in decades. Food, fuel, gas, electricity, tech, general good have all been rising for a while. With inflation and the cost of goods rising faster than wage increases, money is being taken out of people’s pockets that they could have spent on other things.
Today felt like a crescendo of all that pressure. Ofgem finally announced what the new price cap was going to be for gas and electricity. It was rising an eye-watering 54%, or £693. The average household will now pay nearly £2000 per year from April for their gas and electricity. But it won’t end there, as the Chancellor has already warned that they are likely to go up again in October.
Then we had news of what was a much-anticipated interest rate rise from 0.25% to 0.5% by the Bank of England. It could have been even more, with four voting members choosing to raise rates by a full half-per cent. It’s widely expected that the next few months will bring further interest rate rises to combat soaring inflation. Not great news if you are one of the millions on tracker mortgages. This will be a major worry.
Inflation was next. The Bank of England has forecast that inflation will peak at 7.25% by the Spring. It’s already at 5.4%, and there have been warnings that the cost of the weekly shop at supermarkets has risen the most in more than ten years. Given the BoE’s poor track record on inflation these past few years and how far behind the curve they have been, I would say there is a good chance inflation will rise beyond their new forecasts.
The net effect of all of this, even when taking into account wage rises of around 5%, is that people’s pay will be 2% lower by the end of the year. That is the worst drop in living standards on record.
Chancellor Rishi Sunak announced support today for much of the country. With a £200 upfront discount on energy bills, which will be paid back over 5 years in £40 increments. There will also be a £150 cut in council tax. Combined this is not enough to make a dent in the huge price increases that we’re seeing across the board.
If you manage to look through the social media boosterism, you can sense that the business environment within UK fenestration is shifting. The start of this year certainly feels different to the start of 2021, and I have spoken with many who have told me that January has been very patchy for them.
Could this just be seasonal shifts? Maybe. But doing what I do I can see and feel the atmosphere of sales activity changing. People appear to be a little more cautious. Putting off spending decisions. Or going for the cheaper options and sacrificing elsewhere. Whatever is the reason, 2022 is not going to be like 2021.
That’s not negativity, that’s pragmatism. We all know the gravy train couldn’t last forever, and now it feels like it has run out of steam. We need to hope that any drop in business isn’t a stark one, as we have all grown to accommodate much higher levels of business than usual.
However, where there are problems there are also opportunities. In our case, the marketing dream that is selling energy-efficient windows to help reduce heat loss in people’s homes. Yes I know there is the trickle vent debate ongoing but let’s set that aside for a minute. There is always a strong argument for long term investment in homes to reap the benefits later on. In our case, we are able to go to the public and communicate strongly that new windows and doors that are way more energy-efficient than existing ones will benefit a home in the long run with prolonged lower energy bills. That is an easy message to get across and one that is tangible.
We also now have to compete with other big-ticket sectors like vacations when it comes to convincing people where to spend their money. Remember that many haven’t been abroad for a few years now and with reduced testing, it is becoming easier to travel again. We have to be loud and in as many places as possible to remain at the forefront of people’s minds when it comes to spending decisions. This was always going to be an issue when foreign travel became viable again.
Marketing activity, therefore, has to be ramped up immediately. I believe there is a slowdown coming, and we now have to maintain the new levels of business we have all become used to. Cutting back on marketing and being seen less, at a time when people may well be reducing their spending will only compound the problem.
Our sector has to be acutely aware of the economics surrounding us and adapt as needed.
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