Household finances in the UK fell more sharply in August than the previous month after rising levels of unemployment hit average incomes and persuaded millions of families to cut back on spending according to the latest IHS Markit UK household finance index.
The finance index was down following steady increases through May, June and July, dipping from 41.5 in July to 40.8 in August on a scale where a figure above 50 indicates an improvement in household finances.
Looking into the future was just as gloomy, as households in the UK remained highly pessimistic of their financial wellbeing over the coming 12 months. The respective index gained only one-and-a-half points from July and remained firmly below the 50.0 neutral mark, signalling that UK households anticipate their finances will have worsened by August 2021.
Household spending and demand for credit Caution surrounding non-essential expenditure continued in August, with UK households recording a further reduction in their overall spending. The rate of decline did ease from July, but was still sharp. This was not helped by falling cash availability, with the latest survey data highlighting a marked reduction in the amount of cash available to UK households.
Subsequently, the survey measure regarding the need for unsecured borrowing returned above the 50 no-change mark in August, indicating that households were again expanding credit facilities such as overdrafts and credit cards.
Workplace activity, income and job security August data highlighted another reduction in income received from employment, with the latest decline sharp, despite easing further from May’s record drop. Troublingly for the UK economic outlook, the survey measure of job security perceptions was also negative amid the ongoing COVID-19 pandemic and a substantial number of redundancies.
Although the least downbeat for five months, households were still more pessimistic regarding their job security than at any other time since April 2011. With some businesses still impacted by lockdown measures, or yet to fully reopen, workplace activity declined further in August according to UK households. Mirroring the fall in job security, the latest decline was the softest registered since the downturn began in March
Lewis Cooper, Economist at IHS Markit said: “The latest survey data highlight a continued strain on the finances of UK households, with the headline figure dipping in August as pressure intensified slightly.”
“The 12-month outlook for finances remained highly negative amid substantial uncertainty surrounding the economic impact of the COVID-19 pandemic. “Incomes from employment fell sharply again, while the survey measure of job security perceptions remained firmly in negative territory as the winding down of the government’s furlough scheme looms.”
“Overall, the data hints at some worrying trends when put in the context of the significant recession facing the UK. Although lockdown measures are looser; households are spending less, earning less and unsure about their jobs, all of which has the ability to add severe friction to the pace of the economic recovery.”