UK household finances ease

The financial strain on UK households eased at the start of the second quarter, according to latest figures from financial information company Markit.

The seasonally adjusted Household Finance Index (HFI) edged up to 45.3 in April, from 44.8 in March. Though still below the 50.0 no-change threshold, the latest reading was among the highest recorded in over seven years of data collection.

Three out of eight monitored job sectors saw an outright improvement in financial wellbeing during April – the most since the survey began in early 2009.

Those working in media/culture/entertainment were the most upbeat, followed by manufacturing and retail staff. Notably, perceptions worsened in finance/business services for the first time in five months. By region, only the East Midlands reported a better financial situation compared to March. The strongest downturn was seen in Wales, followed by the North West and Yorkshire & Humber.

Underlying data highlighted that renewed growth of income from employment had been a key factor supporting financial wellbeing in April. Workplace activity rose more quickly, but worries about job security were still prevalent.

Meanwhile, current inflation perceptions picked up to the highest in 16 months. For the first time in three months, UK households were downbeat about the financial outlook in April. This was signalled by the seasonally adjusted index measuring the outlook for financial wellbeing over the next 12 months posting 49.6, down from 51.4 in March. The degree of optimism eased in the private sector (index at 53.1), while public sector workers on average expect to be financially worse off in 12 months’ time (49.5).

Workplace activity increased further in April, stretching the current sequence of growth to 47 months. The rate of expansion picked up slightly since March, but remained slower than the average over that period. After having fallen for the first time since late 2014 during March, income from employment returned to growth in April. The rise in salaries was broadbased across the private and public sectors. Continuing the trend observed throughout 2016 so far, job insecurities were widespread in April. Even the highest earners expressed downbeat sentiment regarding their job security in the latest period.

Price pressures intensified in April. The seasonally adjusted index measuring current inflation perceptions rose to a 16-month high of 66.8. The respective index for expected living costs over the year ahead showed a similar trend, climbing to an eight-month high of 81.6.

Higher inflation perceptions in April may have had an impact on households’ views regarding the next change in the Bank of England base rate. One-quarter of respondents expect tighter monetary policy within the next six months – the highest proportion since January.

Markit economist Philip Leake said: "Latest HFI data from Markit paints a mixed picture for UK households. On the one hand, the squeeze on finances softened in April. Improvements in the labour market were the main positive developments – income from employment returned to growth and workplace activity rose at a faster pace.

"In contrast, the financial outlook worsened for the first time in three months. Rising prices appeared to be a contributing factor, with current inflation perceptions mirroring recent CPI data by reaching a 16-month high. What’s more, savings and cash available to spend continued to fall, according to survey participants.

"With inflation starting to pick up, some households brought forward their interest rate expectations in April. For the first time since January, more than half of respondents expect a rise in the base rate over the coming year. Simultaneously, the proportion of households predicting a rate cut was down from the survey-record high seen in March."

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