UK households still pessimistic about their finances

20th August 2014

The UK’s Markit Household Finance Index rose fractionally to 42.2 in August, up from 42.0 in July but still well below the neutral 50.0 value says Markit, indicating pessimism.

Negative sentiment was strongest among households in Yorkshire & Humber, while households in the South West were the least pessimistic over their finances. Meanwhile, construction workers signalled a slight improvement in their current financial well-being, in contrast to workers in many other sectors.

Household finances were depressed in August by weak assessments of cash availability and savings. Income from employment was unchanged in August, but rising activity at work meant that households were less downbeat regarding job security than at any time since the survey began in February 2009.

There was a deterioration in expectations of financial wellbeing for the third consecutive month. The index posted below the 50.0 no-change threshold at 48.8 in August, but this was up from July’s six-month low of 47.1.

Workplace activity expanded for a twenty-seventh successive month in August, though at a weaker pace than in July, as the seasonally adjusted index dropped from 58.4 to 57.0. The latest survey suggested that activity growth was driven by strong expansions in finance/business services and construction, while only those working in retail reported a decline.

In spite of continued growth in business activity, income from employment was unchanged in August. Both public and private sector employees indicated broadly unchanged pay in the latest survey period. Pessimism over job security continued to diminish and was less pronounced than at any previous point in the survey’s five-and-a-half year history.

Current and future inflation perceptions

Households’ current inflation perceptions rose marginally in August, following July’s 55-month low. At 73.7, the seasonally adjusted index posted well below the long-run series average (81.9).

Similarly, the index measuring expected living costs over the year ahead climbed to 87.4 in August, up from July’s 56-month low of 85.8. As a result, inflation expectations were at the second-lowest level since December 2009.

UK households (with 1500 households surveyed) pushed back their expectations regarding the next rise in the Bank of England base rate.

Of those that expressed a view (78% of the 1,500), 44% of UK households expect the first hike in interest rates to take place within the next six months, down from 50% in July and the lowest proportion since May.

Only 17% of households expect the Bank’s Monetary Policy Committee to move on rates within the next three months (i.e. prior to mid-November). This fell further from the peak seen in June, when 27% of households expected rates to start rising within the next three months.

Just 4% expect the first rate rise to occur in the next month, little-changed from 3% in July. The proportion expecting a rate hike within the next 12 months edged down to 74%, from 79% in July.

Tim Moore, senior economist at Markit, says: “Subdued inflationary pressures and improving economic conditions are supporting financial wellbeing this summer, but hopes of a boost to pay rates have so far failed to materialise, according to the latest survey.

“Households reported stagnant pay levels in August, resulting in the greatest pressure on cash available to spend for six months, alongside further pessimism about the outlook for household finances over the year ahead.

“While current pay pressures appear modest, the August survey pointed to sharply improving labour market conditions, with workplace activity rising at a near-record pace and job insecurity falling to a fresh post-crisis low.

“Meanwhile, the latest survey results show the most dovish public view on interest rates since May, with less than half of all households believing that the Bank of England will raise rates before February 2015.”


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