Consumer income

Consumer income is the money people receive from work or from investments, such as wages, salaries and interest on savings. Disposable income is what is left after tax and other deductions such as National Insurance and pension contributions. It is the money consumers actually have available to spend or save, so it matters more to businesses than income before deductions.

When incomes rise

Rising consumer income usually increases demand, especially for non-essential goods and services such as meals out, holidays and designer clothes. With more spare money, households can afford extras they previously went without. Higher demand can also encourage new businesses to enter the market, because owners expect more customers to be able to afford their products. For example, if a large employer opens a well-paid site in a small town, a café may sell far more lunches, and a rival café may decide the area is now worth opening in.

When incomes fall

Falling consumer income usually reduces demand and may make consumers switch to cheaper alternatives. A family might swap branded cereal for a supermarket own-brand or cancel a streaming subscription. This switching to cheaper options is called trading down.

The type of business matters

The effect on a particular business depends on what it sells. A shop selling essentials, such as a budget supermarket or a value pharmacy, may be less affected than one selling luxury products. It may even gain customers as people trade down to cheaper brands. A business selling big-ticket discretionary products, such as custom-built garden offices or hot tubs, could lose orders quickly when incomes fall, because customers can delay or cancel a purchase they do not really need.