Consumers grow more pessimistic over their finances as pressure builds

21st October 2015


Households are downbeat about financial prospects as pressures continue to build and wage growth remains weak.

The Markit Household Finance Index aims to predict consumer behaviour and is compiled each using data collected by Ipsos MORI.

After adjusting for seasonality, the Markit UK Household Finance Index (HFI) posted 43.7 in October, little-changed from 43.8 in September.

The reading pointed to a further squeeze on household finances, and one that was stronger than the average recorded so far this year. However, the degree of pessimism surrounding financial wellbeing was subdued in comparison with the long-run trend (39.5).

Weaker financial perceptions were broad-based by region, with households in the North East the most downbeat.

Similarly, negative sentiment was signalled in all but two of the monitored job sectors, with finance/business services and media/culture/entertainment the exceptions.

Ongoing improvements in labour market conditions were the main positives from the latest survey, although both workplace activity and income from employment rose at a weaker pace than in September. Meanwhile, price pressures remained historically muted.

October data signalled renewed pessimism among UK households regarding the outlook for financial wellbeing over the next 12 months. Public sector workers gave another downbeat assessment of their financial prospects, as has been the case throughout much of the survey’s history.

Private sector employees remained upbeat, but the respective index slipped to a near-two year low (51.1).

Workplace activity increased for the forty-first month in a row during October.

Although solid, the rate of growth eased to the weakest since November 2013. By sector, the sharpest rise came in finance/business services, closely followed by construction and IT/telecoms.

The upturn in income from employment stretched into a tenth successive month in October – by far the longest sequence of growth recorded since the series began in 2009.

Though modest, the latest rise was stronger than the average noted so far in 2015. For the first time in the survey history, those in the £15-23,000 household income bracket recorded the fastest rise in workplace earnings.

Despite further growth of workplace activity and income from employment, UK households continued to express concern towards their job security.

At 63.0 in October, the seasonally adjusted index measuring inflation perceptions was little-changed from 62.9 in September and consistent with a relatively muted rise in the cost of living.

The index for expected living costs over the year ahead showed an almost identical trend, remaining broadly stable at 79.8. This was much lower than the average over the survey’s 80-month history (88.1).

UK households were less likely to predict an interest rate rise before the end of the year during October. A small minority of respondents (12%) expect tighter monetary policy within the next three months – the lowest proportion since June. Likewise, fewer households anticipate a rate rise within the next six months (34%).

Philip Leake, economist at Markit, says:“UK households’ financial pressures showed little sign of fading in October. The financial strain was more pronounced than that seen throughout much of 2015 so far.

“Similarly, financial expectations for the coming year were downbeat, reversing the trend seen in the prior month. Pessimism was seen despite positive factors such as rising pay and ‘noflation’, suggesting that the underlying fragility of the recovery continues to undermine financial wellbeing.”

Rory Stuart, wealth planner at Sanlam, says:“Despite big positives such as rising pay and the speculation around a rise in interest rates dying down, Britons are still feeling downbeat about their finances as we enter the winter months. With a rise in inflation looking likely, this could lead to a rise in rates which combined, would ultimately hit households’ disposable income harder.

“As such, there is still a long way to go for UK households to actually feel financially secure, but by starting to plan their spending, people can be more confident in managing their own finances. It is important that consumers recognise that there will be positive and negative times ahead for the economy, but by prioritising their own financial planning this will help them to weather any storms that may come their way.”

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