In an unpromising sign for economic recovery, the financial health of British households worsened at a faster rate in August than in July.
The Household Finance Index fell from 41.5 in July to 40.8 in August. The index was driven by a fall in wage income and the biggest drop in job security since 2011.
What is the Household Finance Index?
The Household Finance Index is carried out by IHS Markit, a data company, and measures households’ overall perceptions of financial wellbeing.
IHS Markit, along with Ipsos Mori, carried out a survey of 1,500 adults from August 6th to August 9th. The survey is based on monthly responses of these adults and then analysed to get an idea of the public perception on their finances.
What has the most recent survey revealed?
The most recent survey has found that around 50% of households expect their finances to worsen, while only 19% expected them to improve.
Overall, the survey found that UK households remain “highly pessimistic of their financial wellbeing over the coming 12 months”.
The survey found that people are increasingly worried about their financial prospects and the risk of losing their job. This is accompanied by a decrease in household spending and a decline in take-home pay.
On top of the survey there have been other indicators that consumer confidence is still lower than before the pandemic. Reports today from Springboard have found that footfall on the UK high street was down nearly 40% last week. This is compared to a year earlier, and 0.5% from the week before. They have also reported that London shops suffered the most, most likely due to many employees still working from home. However, this along with the survey shows that household spending is down significantly compared to the year before.
How many people have been made unemployed since the pandemic?
Since the start of the lockdown, data has suggested that more than 700,000 have lost their jobs. Official unemployment figures have not risen from 3.9% – their pre-pandemic level. However, this is expected to increase when the furlough scheme ends in October, leading for some to call for an extension of the scheme.
The Bank of England have predicted an unemployment rate of 7.5% by the end of the year though warned that it could also be worse than that.
What have the experts said?
An economist at IHS Markit said;
‘Overall the data hint at some worrying trends when put into context the significant recession facing the UK…Incomes from employment fell sharply again, while the survey measure of job security perceptions remained firmly in negative territory as the winding down of the government’s furlough scheme looms’
What does this mean for the economy?
Essentially it means that the quick rebound everyone was hoping for might not actually be as quick, or as effective, as first hoped.
As households cut back on spending and unemployment rises, consumer confidence will continue to fall. While households spend less, earn less and are more cautious about spending money, then the slower the economy will recover.