Ageing UK households’ impact on growth

Guest post by Paul Hodges| Jan 29 11:28 |

The UK’s ageing population is creating major headwinds for economic growth, data published last month by the Office of National Statistics shows.

The issue is simple: the ageing of the Baby Boomers means most UK households are now headed by someone more than 50 years old. On average, these households spend almost 20 per cent than less those headed by younger people. Consumer spending is around two-thirds of GDP, and so this ongoing shift in spending patterns is inevitably impacting the economic outlook.Two key facts provide the necessary context. One is that the majority of UK households have been headed by someone more than 50 years old since 2002. The second is that average household expenditure (in £2013) has now been in steady decline since 2006.

This chart highlights how these trends have developed:

The majority of UK households are now headed by someone aged over-50. In 2013, there were 14.6 million in this segment, compared to just 12.3 million headed by the under-50s. These older households spend less that younger ones. Average spend by those in the older age group was just £24k in 2013, compared to the £30k averaged by the under-50s. As a result, total spending by the larger segment of 50+ households at £354 billion was slightly less than the smaller, younger segment’s $368 billion.

These trends seem likely to continue. The ongoing decline in fertility rates continues to reduce the size of the highest-spending cohort, those aged 30-49. Their numbers have fallen from 9.8 million in 2000 to 9.6 million in 2013. At the same time, increasing life expectancy has led to an increase in the size of the 50-64 age group from 6.2 million to 7.1 million over the same period. Even more remarkably, the number in the very low-spending 75+ cohort has jumped by almost a quarter to 3.6 million, and their average spend is less than half of the 30-49 cohort.

This chart highlights how spending declines across all major categories past the age of 50. Peak spending takes place in the 30-49 cohort, when people are settling down, often starting a family, and seeing their careers and earnings develop. But after 50, spending reduces as the children leave home and their incomes decline as they enter retirement.

The two largest areas, housing and transport, see an immediate decline as people move into their 50s. In others, such as recreation and food & drink, the decline is delayed until they reach 65+. Overall, total spend by the 50-64 cohort averages 93 per cent of peak spending, whilst spend by the 65+ cohort is only three-quarters of the peak.

It is hard to see how these trends can be mitigated by policymakers. Today’s 65-year-olds now benefit from an extra decade of life expectancy compared to 1950, when they were born. But no political party is likely to go into May’s general election with a promise to immediately increase retirement age by 10 years to balance this.

The ONS data thus highlights the major challenge faced by policymakers, as they seek to restore economic growth to the SuperCycle levels seen when the Baby Boomers were in their prime spending years.

Paul Hodges is the co-author of Boom, Gloom and the New Normal: How the Western Baby Boomers are Changing Demand Patterns, Again. www.new-normal.com