Outlook for household finances recovers in August

Current finances remain under pressure in line with trend for year to date, while job insecurities have eased amid rising workplace activity levels, according to the new Markit Household Finance Index.

UK households’ financial perceptions showed signs of recovery in August.

The seasonally adjusted UK Household Finance Index (HFI) posted 44.9, up from 44.3 in July. Although remaining below the 50.0 threshold to signal continued overall deterioration in household finances, the latest reading was nevertheless the highest in four months.

Expectations for finances in the next 12 months rebounded in August, having hit a two-and-a-half year low in July following the Brexit vote. At 49.8, up from 47.1, the latest index reading suggests households anticipate a broadly stable financial outlook over the year ahead.

The highest earners are the most bullish regarding their future financial situation, whereas lower earners are pessimistic. Private sector workers reported a brighter outlook for their finances than those in the public sector.

Workplace activity, job security and incomes Workplace activity rose again in August, having dropped for the first time in over four years during July. Utilities/energy/transport, personal services and education/health/social services saw the strongest increases in activity. Pessimism around job insecurity correspondingly eased, having hit a three-year nadir in July.  

Income from employment showed a further rise, but the latest increase was the weakest in three months and modest overall, having slowed from a survey-record high in July.

Current inflation perceptions remained broadly steady in August. Similarly, expectations for living costs in 12 months’ time were little-changed in the latest month and remained below the survey’s historical average.

The Bank of England lowered its base rate to a new low of 0.25 per cent on 4 August, having kept it unchanged at 0.5 per cent since March 2009. Some 39 per cent of households polled in August indicated that they expect the next move to be a further cut. Of the remainder, most households anticipate that a rise in interest rates will occur later rather than sooner. Just 16 per cent expect that interest rates will increase within the next six months, climbing to 28 per cent predicting a rise within the next year and 44 per cent within the next two years.

An increase sometime after the next two years is anticipated by 17 per cent of households.

Jack Kennedy, senior economist at Markit, which compiles the survey, said:

"The outlook for household finances stabilised in August after last month’s wobble following the Brexit vote. Expectations regarding future finances improved to the highest for five months, while current finances remain under pressure but no more so than the trend seen over the past year-and-a-half.

"Concerns seem to have eased in line with the removal of some of the immediate political uncertainty arising from the shock referendum result, combined with a strong monetary policy response from the Bank of England aimed to cushion the economy and head off any lurch towards recession. In particular, those households with tracker mortgages will be seeing a swift beneficial impact on their finances.

"Households were also reassured by a rebound in workplace activity levels, reflected in easing job security worries in the latest month. The survey’s prices indicators meanwhile suggest currently stable inflationary pressures facing consumers despite sterling’s weakness."

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