Households upbeat about finances in May with job fears lowest for more than five years says Markit

21st May 2014

Households remain upbeat about future finances in May as fears over job security hit lowest level for more than five years according to the latest Markit survey.

At 42.4 in May, the seasonally adjusted Markit Household Finance Index (HFI) – which measures overall perceptions of financial wellbeing – remains well below the neutral 50.0 threshold, but remained close to the survey-record high posted in April (43.0).

Households were helped by another moderation in inflation perceptions and improving labour market conditions. The survey found a robust expansion of workplace activity and the lowest degree of job insecurity since the survey began in early 2009. As a result, some of the strains on savings were alleviated in May, with households recording the lowest pressures on savings for at least five years.

Expectations for finances in the next 12 months

At 51.9 in May, the seasonally adjusted index measuring the outlook for financial wellbeing over the next 12 months was unchanged from the survey-record high recorded in April. Households have now indicated a positive outlook for their financial wellbeing in three of the past four months, contrasting with five years of downbeat sentiment prior to February 2014 say the researchers.

Upbeat assessments of future finances reflect strong optimism among those working in the private sector, while those employed in the public sectors remained highly downbeat about their financial outlook.

Workplace activity, job security and incomes

May data pointed to a robust and accelerated rise in workplace activity, with the latest expansion the steepest since the survey began in early 2009. At 57.1, up from 56.3 in April, the index has now posted above the neutral 50.0 threshold throughout the past two years on this measure.

A sharper increase in workplace activity led to reduced job insecurity during May.  Households indicated that fears over job security were the lowest since the survey began in February 2009. Meanwhile, income from employment increased for the sixth month running in May, but the rate of growth remained only marginal.

Current and future inflation perceptions

Current inflation perceptions dipped for the seventh successive month in May. At 74.4, the seasonally adjusted index signalled the slowest increase in living costs since December 2009.

Households’ inflation expectations remained subdued compared to those seen on average since the survey began over five years ago. The seasonally adjusted index measuring expected living costs over the year ahead rose slightly to 88.7 in May, from a 52-month low in April (87.7).

Tim Moore, senior economist at Markit, says: “The latest survey highlights improving labour market conditions and relatively subdued increases in living costs are delivering an appreciable overall boost to household finances. May data pointed to the weakest pressure on savings for over five years, helped by modest rises in income from employment and a renewed drop in inflation perceptions.

“Looking ahead, households remain upbeat about their financial prospects for the next 12 months, supported by another drop in job insecurities as confidence in the recovery takes hold. Indeed, workplace activity increased at a survey-record pace in May, providing an early sign that the UK economy is expanding strongly over the second quarter of 2014.”

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