BRITISH households saw their finances worsen sharply in January as inflation expectations climbed along with consumer debt.
The latest IHS Markit Household Finance Index, released on Monday, revealed people’s financial well-being declined at the steepest rate since last September as inflation expectations reached a 47-month high. Meanwhile, demand for unsecured debt rose sharply, and job security declined, adding to the squeeze on households despite a modest rise in incomes.
The survey noted households bridging the gap between rising spending and falling current account balances by increasing their unsecured borrowing, which rose at the fastest pace for 11 months during January.
Higher living costs are a major factor driving this trend, with respondents to the survey saying they felt the prices of goods and services were going up. Consequently, people were putting off major purchases like cars and white goods, and said they felt downbeat about their household finances over the coming year.
Sam Teague, economist at IHS Markit, warned that the pressures facing households are growing.
“January data revealed that pressures on UK household finances intensified at the fastest pace in four months, as rising living costs and subdued pay growth have led to a renewed squeeze on cash available to spend,” he said.
“Inflation expectations reached the highest recorded for almost four years, whilst optimism towards future financial wellbeing continued to worsen. In response to lacklustre budget forecasts, households reduced their appetite for big ticket items at the fastest pace since September. That said, there was little evidence to suggest that households reined in day-to-day spending, as households increased their expenditure at a modest rate whilst utilising additional unsecured debt to balance budgets.”
Paul Osborn, chief executive for Foresters Friendly Society, which provides savings and investment advice, added that choosing the right savings products could help consumers overcome the squeeze on their budgets.
“Judging from today’s figures, most of us are still feeling the Christmas pinch,” he said. “It’s hard to keep savings on track when even budgeting for pricey day to day expenses is a stretch. But putting aside money little and often can go a long way to meeting your long-term savings goals as long as you opt for the right product.
“Products like the Tax Exempt Savings Plan or a Stocks & Shares NISA, for example, work really well if you’re looking to make regular deposits instead of investing a lump sum.”