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UK confidence in household finances hits record high

UK households’ perceptions of their financial wellbeing rose to their highest ever levels this month in a sign of growing optimism over the UK’s economic prospects.

IHS Markit’s UK Household Finance Index (HFI) – which measures households’ overall perceptions of financial wellbeing – increased to 47.6 in February, up from 44.6 in January.

Although the index remains below the neutral 50.0 mark, meaning that people’s financial health remains under pressure, the rise suggests the conditions faced by UK households has become less challenging so far in 2020.

The Future Household Finance Index – which measures expected change in financial health over the next 12 months – also rose to 52.7 in February, from 49.6 last month, in a further sign of the UK’s positive outlook.

Joe Hayes, an economist at IHS Markit, said: “[There are] a number of developments that should keep the Bank of England doves at bay and build optimism towards the UK’s immediate economic prospects”.

He added: “Post-election survey data so far scores a fairly good chance a first quarter GDP pickup following a flat end to 2019”.

The survey showed that a falling rate of living cost inflation in February helped alleviate pressure on people’s finances, whilst perceptions of house prices rose at their strongest rate in three years.

UK households recorded a lessened degree of pessimism towards their job security during February, with the index rising (but remaining below 50.0) to a seven-month high.

Meanwhile, the rate of growth in both workplace activity and income from employment accelerated from January.

Last week the outgoing governor of the Bank of England (BoE) said that there had been a bounce in business confidence since December’s election and “to some extent a firming of consumer confidence”.

Johnson’s overwhelming victory at the polls ended three years of uncertainty over whether Britain would leave the European Union on 31 January.

Mark Futcher, head of workplace wealth at Barnett Waddingham commented: “It’s a breath of fresh air to see financial wellbeing at survey-record high. In the post-election and post-Brexit environment, people are standing on steadier ground for their financial future”.

The proportion of respondents expecting the Bank of England to cut interest rates also rose to 27 per cent, its highest since August 2016, when the bank last cut rates.

By Edward Thicknesse

Source: City AM

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UK households continue to spend more than they save

UK households were spending more than they’re saving for three successive quarters for the first time since the financial crisis.

According to data published today (8 October) by the Office for National Statistics (ONS), the cash-basis household saving ratio was negative 0.6 per cent in the second quarter of 2018, which represents an increase compared with the previous two quarters – 0.8 and in March and 1 per cent in December.

A negative cash-basis saving ratio indicates households’ spending continued to exceed their gross disposable income in the quarter.

This is the first time the UK has seen this three-quarter trend since Q3 2007 to Q1 2008, the beginning of the UK financial crisis.

This comes as unsecured debt – credit cards and other short-term loans – has hit a record high of £214bn, according to the Bank of England.

According to estimates of pension provider Aviva, the UK’s unsecured debt equates to average of £7,800 a household.

Alistair McQueen, head of savings and retirement at Aviva, said the UK had “fallen out of love with saving, again”.

He said: “For this first time in more than a decade, we have been spending more cash than saving for three quarters in a row. The last time this happened we were in the midst of the great financial crisis of 2007 and 2008.

“Money is tight. Incomes continue to flat-line, debts continue to rise, and interest rates are starting to creep up. Many households are struggling to keep their heads above their financial waters.

“For many it is wise to save for a rainy day. It may not be raining yet, but there are clouds gathering.”

Kate Smith, head of pensions at Aegon, said the figures “paint a poor picture of the UK’s economic wellbeing overall”.

Despite UK economy growth increasing to 0.6 per cent in the three months to the end of July, “consumers continue to feel the pinch on their purse strings,” she said.

Ms Smith added: “Many households may feel that they are just getting by and today’s figure reveal that not only has real household disposable income per head fallen, but many households’ spending is exceeding their gross disposable income.

“Given ongoing Brexit negotiations and uncertainty around interest rate hikes, consumers are wise to monitor their personal finances closely and avoid burying their heads in the sand. Setting aside as much as possible now will help to build financial security for now and in the future.”

Source: FT Adviser