The postwar generation, enjoying robust pensions and current interest rate hikes, has undoubtedly stimulated economic growth. However, this boost comes with several drawbacks, most notably, rising prices
Rishi Sunak has committed to cutting inflation in half this year, but he faces a formidable challenge from a crucial voter demographic he hopes will support his continued tenure: the baby boomers.
Born between 1946 and 1964, now aged 59 to 77, these boomers are sustaining persistently high inflation levels due to their substantial spending. Equipped with generous final-salary pensions or stable employment, and benefiting from the swift increase in interest rates on their savings, millions of baby boomers are defying the prevailing economic pessimism to maintain their spending habits.
Recent official data revealed that annual inflation remained at 6.7% in September, unchanged from August, defying expectations of a slight decline. Sunak’s goal to reduce last year’s 10.7% rate by half before the end of 2023 appears to be at risk.
For many baby boomers, their robust financial positions result from decades of favorable economic circumstances. They have enjoyed the advantages of free higher education, escalating property values, policies like the right to buy, a growing job market, and the enhancement of defined benefit pension schemes, ensuring relative financial stability as they transition into the elderly generation.
The pensions triple lock, which guarantees an increase in line with the highest among average earnings, inflation, or 2.5%, has solidified this financial safety net. However, government officials are contemplating a potential one-time deviation from the pensions triple lock, aiming to save £1 billion by preventing a substantial 8.5% hike in the state pension next year.
As interest rates started their ascent in 2021, reaching 5.25% in August, the Bank of England has suggested that savings rates are expected to remain elevated for an extended period, providing continued impetus for baby boomer spending well into 2024. According to the Resolution Foundation, baby boomers are the primary beneficiaries of an unexpected windfall, with an estimated £90 billion set to be distributed in the upcoming year from £1.7 trillion in interest-bearing savings.
The substantial increase in purchasing power for savers was underscored by a recent offer from Nationwide, providing an 8% interest rate on deposits for current account holders. Additionally, Santander and First Direct offer 7%, also exclusive to current account holders.
While baby boomers constitute 13.14 million of the UK’s 67 million population, as indicated by the latest figures from the Office for National Statistics (ONS), it’s important to note that other segments of the population have not seen the same financial gains in the past year. In particular, low- to middle-income families have experienced income stagnation or decline when adjusted for inflation.
Recent data indicates that individuals in the financial sector in the City and senior commercial managers have experienced substantial pay increases. However, when considering the collective average spending nationwide, encompassing all age groups, the trend is a decrease.
While official data on age-specific spending habits in the UK is limited, more comprehensive surveys in the United States reveal a distinct trend among baby boomers. Research conducted by the Bank of America Institute for the year up to May showed a 0.2% decline in household spending. However, when breaking down the data by generation, it became evident that spending by individuals aged over 75 increased by 5%, and by 2.5% for baby boomers. In contrast, the spending of Generation Z (those born in the late 1990s and early 2000s) decreased by 2%, mainly due to the burden of student loan repayments.
In the following sections, we will draw attention to how baby boomers, based on official data and business surveys, play a substantial role in bolstering various sectors of the economy, contributing to the persistence of high inflation.
Housebuying
The UK’s housing market is showing signs of improvement following a challenging year characterized by declining prices and a limited number of property transactions. Data from the Office for National Statistics (ONS) revealed a marginal decrease in estate agency activities, with a 0.01% drop in the first quarter and a 0.03% decline in the three months ending in June.
A cautious recovery seems to be on the horizon as the average UK house price in August increased by 0.2% to reach £291,000, approaching the peak seen in November 2022 at £292,187.
First-time homebuyers are becoming increasingly scarce, with the housing market being predominantly driven by individuals over the age of 50. Property data firm Outra reports that the average age of homeowners anticipated to relocate within the next six months has surged by 3.5 years since 2022, now standing at 52.5 years.
Moreover, the majority of those planning to move house possess substantial deposits, with a significant portion having equity of at least £250,000 tied up in their homes, according to the company’s pre-mover index. This indicates that the majority of buyers are likely to be considerably older and more affluent than the typical homebuyer.
Giles Mackay, the founder of Outra, expressed concern over the current trend, suggesting that the UK’s housing market is increasingly becoming the domain of the elderly and wealthy. He raised the possibility that this shift might be the beginning of an “inheritocracy.”
Holidays
Ryanair is poised to achieve record profits following a surge in bookings for flights and vacations during the summer season. Winter holiday plans are also filling up rapidly. Official data indicates that the number of individuals traveling abroad for vacations remains below pre-pandemic levels, but the expenditures reached record highs. Some of this can be attributed to increased airfares, which no longer offer the economical prices once relied upon by many millennials for short-haul weekend getaways.
Another factor contributing to this shift is the post-pandemic preference for more luxurious and aspirational vacations. According to Saga, a company catering to individuals over 50, their interim report published in September 2022 revealed that 15.8 million travelers embarked on an average of 3.3 trips annually, equating to 52 million holidays.
Moreover, research indicates that two-thirds of these over-50s expressed intentions to take between two and four vacations in 2023, with a quarter planning to take five or more trips during the year. A majority (55%) of respondents reported that the cost of living crisis did not impact their holiday plans, and 14% stated they intended to spend more than £5,000 per person on their primary holiday.
Saga’s data reveals a 17.1% increase in the number of holidaymakers this year compared to the previous year, with the top long-haul destinations being the US, Canada, and Australia. Short-haul favorites include France, mainland Spain, and Italy.
The Guernsey-based ferry operator Condor disclosed that 82% of baby boomers planned to take between one and five leisure trips in 2022. Anecdotal evidence suggests that vacations have become “longer and more distant,” with travelers opting for cruises to the Caribbean or the Nordics instead of round-Britain cruising, according to a travel expert.
