Weak pay growth and rising living costs exert greater pressure on UK household finances

April's survey data signals sharpest fall in cash available to spend since August 2014, however, consumer demand holds up, as spending rises at fastest rate since June 2016.

April findings from the Markit Household Finance Index show the squeeze on UK household finances worsened during April, as highlighted by a fall in the seasonally adjusted Household Finance Index (HFI) to 42.5, from 43.1 in March. This was one of the lowest readings seen since the summer of 2014.

A sharp and accelerated squeeze on financial wellbeing was largely driven by renewed pressures on cash available to spend, which dropped at the fastest pace since August 2014. This reflected a combination of strong rises in living costs and subdued pay growth so far in 2017.

Despite a greater squeeze on financial wellbeing, the latest survey suggested that consumer spending remained resilient. Households reported the fastest rise in spending since last June.

There were signs that increased household expenditure had been achieved through an erosion of savings and greater demand for unsecured credit, with the former declining at the sharpest pace since July 2014.

Tim Moore, senior economist at IHS Markit, which compiles the survey, said: "April’s survey data reveals that pressures on UK household finances have returned to levels last seen in the summer of 2014, as rising inflation and subdued pay growth have created a renewed squeeze on cash available to spend. Households are also more worried about their financial outlook than at almost any other time in past three years.

"However, there was little sign that UK households have begun to rein in day-to-day spending. Instead, survey respondents reported the largest drop in savings for just under three years, while demand for unsecured credit continued to increase during April.

"Evidence that consumers are opting to maintain spending rather than belt-tighten provides a positive signal for UK economic growth in the short-term. The latest survey also highlighted a robust increase in workplace activity in April, which was broadly spread among private sector employees. This is an early signal that the wider UK economy has carried through a healthy degree of growth momentum into the second quarter of 2017."

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