Financial wellbeing is deteriorating at its fastest pace since September 2017 despite a sustained rise in income from employment according to a new report IHS Markit. The report found that household finances were squeezed to the strongest extent since September 201 whilst workplace activity and incomes from employment continue to rise.
The outlook towards future finances was the least downbeat since last November, with the respective index measuring financial wellbeing expectations increasing for a third successive month. Workplace activity, income and job security Survey data indicated further growth to both workplace activity and incomes from employment. UK households signalled a solid rise in the former during May that was the quickest in six months. Earnings from employment were also up from the previous month, although the rate of increase softened from the survey record seen in April. However, perceptions towards job security remained downbeat in May, with the degree of negativity increasing since the previous month. Sector data revealed that, as has been the case in recent surveys, that those employed in the manufacturing and retail sectors were the most pessimistic towards job security.
Major purchases and household spending Latest data suggested that growth in UK household expenditure continued in May. Although the expansion was slower than in April, it was slightly stronger than the long-run average. However, survey respondents’ appetite for major purchases remained stuck in a downward trend during May, declining at a slightly quicker pace than seen previously.
Living costs and inflation expectations UK households perceived living expenses to have risen markedly during May. Survey data signalled an increase that was only slightly softer than April’s seven-month high. Meanwhile, inflation expectations moderated to a four-month low in May. Households’ views on next move in Bank of England base rate Latest survey data showed an increase in the proportion of UK households anticipating the next move by the Bank of England to be a rate hike. Over the coming six months, approximately 45% of UK households predict a base rate rise, compared to nearly 39% in April.
Joe Hayes, Economist at IHS Markit, which compiles the survey, said “UK households continued to show pessimism towards their financial health during May, with the respective index hitting a 20-month low and signalling a stronger level of negativity. Despite the latest labour market data showing historically-low unemployment and reasonably robust wage growth, weak confidence has acted to undermine these trends and led to belt-tightening at UK households. Appetite for major purchases continued to wane, while job security perceptions remained downbeat once again.”
“It does seem, however, that households expect the current situation to stabilise over the coming year, with financial expectations turning less subdued in May. Survey data showed a slight shift in household interest rate expectations, with almost three-quarters predicting a rate hike in the next 12 months.”
The monthly findings from the IHS Markit Household Finance Index aim is to anticipate changing consumer behaviour accurately.