Consumers under financial strain reports researchers

Households report worst financial strain in nearly two years reports the May findings from the Markit Household Finance Index.

Markit UK households reported the greatest pressure on their finances in nearly two years during May. This was signalled by the seasonally adjusted Household Finance Index (HFI) dropping to a 22- month low of 42.3, from 45.1 in April.

The reading pointed to a substantial deterioration in financial wellbeing, but was nevertheless above the average recorded since data collection started in early-2009 (39.9). For the first time since August last year, financial perceptions worsened in each of the eight monitored job sectors. Those working in media/culture/entertainment were the most downbeat, closely followed by retail employees.

It was a similar story among regions covered by the survey, as data signalled a broad-based downturn. The sharpest drop in finances came in Wales, followed by London. Bleaker financial perceptions partly reflected stronger price pressures in May. Households indicated that inflation had picked up to the quickest in 17 months. Slower rises in workplace activity and income from employment also weighed on sentiment, while savings fell to the greatest extent since September 2014.

After adjusting for seasonality, the index measuring the outlook for financial wellbeing over the next 12 months posted 49.6 in May, little-changed from 49.5 in April and only slightly below the neutral 50.0 mark. Downbeat sentiment was recorded overall in spite of sustained optimism in the private sector – largely due to greater pessimism among public sector workers.

Income from employment rose for the second straight month in May. However, the rate of salary growth moderated since April and was only marginal overall. Despite slower expansions of activity and income, worries about job security eased in May and were the least marked since the turn of the year. Current and future inflation perceptions Inflationary pressures accelerated to the fastest in almost one-and-a-half years during May. The seasonally adjusted index measuring current inflation perceptions climbed to 68.0, from 66.9 in April. Likewise, the index for expected living costs over the year ahead ticked up to a 17-month high (82.9). Households’ views on next move in Bank of England base rate UK households pushed back their interest rate expectations during May.

Philip Leake, economist at Markit, which compiles the survey, said: "In a period of heightened uncertainty ahead of the EU referendum, Markit’s HFI survey pointed to a marked financial squeeze in May, but households’ expectations for the year-ahead were little-changed since April. "Underlying data highlighted stronger price pressures as a key reason behind the downturn. Current inflation perceptions picked up to a 17-month high. Along with higher prices, households reported weak pay growth and a sharper drop in savings.

"However, greater inflation perceptions appeared to have little impact on interest rate expectations in May. The proportion of respondents expecting a rise in the base rate over the next year slipped back below 50 per cent, resuming the trend seen in February and March. With near-term economic prospects far from certain, the majority of households do not envisage monetary policy tightening any time soon."

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