Rishi Sunak has promised to cut inflation in half this year, but he’s facing a challenge from the very group of voters he’s counting on: baby boomers. These individuals, born between 1946 and 1964 and now aged 59 to 77, are contributing to the stubbornly high inflation with their spending splurges. With stable finances and generous pensions, boomers are defying the economic gloom and continuing to spend. This has led to concerns that Sunak’s target of halving last year’s 10.7% inflation rate by the end of 2023 may be in jeopardy.
Boomers have enjoyed decades of economic good fortune, benefiting from free higher education, rising house prices, and secure pension schemes. The pensions triple lock, which guarantees an increase in line with average earnings, inflation, or 2.5%, has further reinforced their financial security. However, there are discussions about temporarily breaking the triple lock to save £1 billion.
Since interest rates started rising in 2021, boomers have seen a boost in their savings rates. The Bank of England has indicated that these rates are likely to remain high, providing boomers with extra spending power well into 2024. It is estimated that boomers will receive £90 billion in interest payments on their £1.7 trillion of savings over the coming year.
Boomers are not the only group benefiting from the current economic climate. City workers and senior commercial managers have seen significant pay rises. However, overall nationwide average spending across all age groups has decreased.
While there is limited official data on the spending habits of different age groups in the UK, the US provides some insights. Research by the Bank of America Institute found that spending by the over-75s increased by 5% in the year to May, while spending by boomers increased by 2.5%. In contrast, spending by Gen Zs fell by 2% due to student loan repayments.
Let’s take a closer look at how boomers are propping up various sectors of the economy and contributing to the high inflation.
1. Housebuying
The UK’s housing market is recovering, with a slight increase in prices and transactions. However, first-home buyers are rare, and the market is being driven by the over-50s. These buyers typically have large deposits and are wealthier than the average home buyer.
2. Holidays
Boomers are fueling the travel industry, with record bookings for flights and holidays. The cost of living crisis has not affected their holiday plans, and many are opting for more expensive, bucket-list trips. The top destinations for boomers include the US, Canada, Australia, France, Spain, and Italy.
3. Golf
Golf is a popular leisure activity among boomers. The number of rounds played has significantly increased since the pandemic, with older age groups dominating golf memberships.
4. Recreation and Culture
Boomers spend more on recreational activities and culture compared to younger age groups. They contribute to the recovery of the industry, including cinema, theatregoing, and buying gardening tools, newspapers, books, and package holidays.
5. Private Healthcare
The strain on state healthcare services has led to an increase in private healthcare admissions. Boomers, who can afford it, are opting for private healthcare services.
In conclusion, baby boomers’ spending habits are playing a significant role in keeping UK inflation high. Their financial security, coupled with favorable interest rates, has allowed them to continue spending despite the economic challenges. While this benefits certain sectors of the economy, it also poses a challenge for Rishi Sunak’s inflation targets.