UKJul 23 2018

Household inflation expectations hit 19-month low

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Household inflation expectations hit 19-month low

Household inflation expectations hit a 19-month low in July while job security rose, a report released today (23 July) found.

The seasonally-adjusted IHS Markit Household Finance Index rose to 44.6 in July, up from June’s reading of 43.6 and the second-highest since December 2016 - indicating a more positive outlook for household budgets.

IHS Markit attributed increasing income and softer inflationary pressures to an easing of the perceived strain on current finances, leading to one of the fastest rises in spending since early 2015.

The index suggested UK households anticipate a softer squeeze from inflationary pressures over the coming year, with the July figures showing perception towards current inflation eased to the lowest in more than a year.

Sam Teague, an economist at IHS Markit, said the latest figures indicated light at the end of the tunnel for UK household budgets.

He said: "Strong labour market conditions alongside a solid increase in spending activity signalled improving economic conditions and consumer confidence in the UK."

IHS Markit’s financial expectations index for July registered at 51.3, above the 50 no-change mark and up from 48.2 in June, suggesting households are generally optimistic about the year ahead.

The index found UK households reported an improvement in job security for the first time since the survey began in February 2009, registering at the 50.1 mark compared to 49.4 in June - marginally above the neutral 50 mark.

Mr Teague said: "Despite looming Brexit negotiations, improving job security was reported for the first time since the survey began in 2009.

"Resilient employment perceptions, higher incomes and perhaps a World Cup boost led to a solid increase in spending activity during July."

Data for July showed approximately 30 per cent of households expected the Bank of England base rate to rise in the next three months, increasing from 22 per cent in June, and around half of all survey respondents expecting a rise by the end of 2018.

Samantha Seaton, chief executive of Moneyhub, said households were finally feeling a bit better off and their optimism was on the up thanks to easing inflation and increasing pay.

She said: "But with interest rates expected to rise towards the end of the year, now is a great time for advisers to carry out a rigorous health check of their clients’ finances to help cushion any shocks.

"Advisers can use a financial management app to ensure they have a complete and holistic view of their clients’ financial situation and habits, enabling them to give hyper-personalised advice.

"This will make sure that they are well placed to take advantage of the right opportunities for them, and build towards a healthy financial future."

IHS Markit compiles the household finance index each month using consumer survey data collected by Ipsos MORI and is intended to anticipate changing consumer behaviour.

rachel.addison@ft.com