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British households grew more positive about their finances this month as they faced less of a squeeze from inflation and benefited from higher pay – though most will be in for a shock if the Bank of England raises interest rates next month.

Financial data company IHS Markit said its monthly Household Finance Index rose in July to its second-highest level since December 2016 at 44.6, up one point since June and above its long-run average.

“July data indicated light at the end of the tunnel for UK household budgets,” said Sam Teague, an economist at IHS Markit.

Britain’s economy has picked up since a weak start to the year, when growth was hit by bad weather as well as high inflation sparked by 2016’s Brexit vote. But last week the International Monetary Fund forecast that full-year growth would still be the lowest since 2012.

Nonetheless, most economists polled by Reuters think the Bank of England will raise interest rates next month for only the second time since the financial crisis, as it judges even modest growth risks pushing up domestic inflation pressures.

Just 8 percent of households surveyed by IHS Markit expect a rate rise next month, though 51 percent think one will come over the next six months, up from 45 percent in June.

Households also judged inflation pressures to be at a 13-month low in July. Official data last week showed consumer price inflation unexpectedly held at its lowest in over a year.

Separately, the EEF manufacturers’ association said its members had enjoyed “very strong” growth over the past year but that concern over Britain’s departure from the European Union in less than a year was holding back investment.

“This domestic uncertainty is now being exacerbated by global trade tensions which could add up to potentially different dynamics over the next year,” EEF chief economist Lee Hopley said.

Source: UK Reuters

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