Financial pressure on UK households eases but pessimism sets in
Britons’ views of their financial situation continued to improve in July after deteriorating at a record pace in April, figures have shown, but households became more pessimistic about the future.
IHS Markit’s household finance index rose to 41.5 in July from 40.7 in June. That was above the long-term average but still lower than the figure in March.
However, households’ financial outlook darkened, with the forward-looking index dropping to 42.5 in July from 45.9 in June.
Data firm IHS Markit said the pessimism was driven by worries that people would lose their jobs.
It comes as the UK gradually reopens from its coronavirus lockdown, which tanked the economy in April.
At the start of the month restaurants, cafes, pubs and hotels were allowed to reopen. Social distancing measures have steadily been relaxed.
UK households rein in spending
Yet the UK economy faces a historic crash this year. The “central scenario” from the country’s budget watchdog says GDP is likely to drop by an enormous 12.4 per cent.
Unemployment would surge to 12 per cent by the end of the year from below four per cent.
Today’s survey from data firm IHS Markit showed there was another sharp reduction in household spending in July. The spending index was much lower than at any time in 11 years of survey data prior to coronavirus.
Economists say that this saving could boost the economy if it is released as the lockdown is eased. Yet they also warn that residual caution could mean it is held back, damaging the UK’s consumer-focused economy.
“UK households continue to tighten the purse strings despite a phased reopening of the economy,” said Tim Moore, director at IHS Markit.
He said that “extremely cautious spending patterns” reflect “widespread anxiety about jobs and the outlook for earnings”.