Markit Household Finance IndexTM (HFITM) – United Kingdom
UK households bring forward rate rise expectations in August. Latest data suggests greatest squeeze on finances for eight months
Key points for August 2015:
Sharpest deterioration in household finances so far this year
Over three-quarters of UK households (78%) anticipate a rise in the Bank of England base rate during the next 12 months, up from 62% in July
August data indicates a further marginal rise in income from employment
Inflation expectations reach highest level since December 2014
Data collected August 12-16th 2015.
This release contains the August findings from the Markit Household Finance IndexTM (HFITM), which is intended to anticipate changing consumer behaviour accurately. The HFI is compiled each month by Markit, using data collected by Ipsos MORI.
Markit UK Household Finance Index (HFI) to 43.4 in August, from 45.1 in July. The latest reading was the lowest so far in 2015, but still above the average since the survey began around six-and-a-half years ago (39.4).
August data suggested a greater squeeze on household finances across the majority of job sectors monitored by the survey, especially education/ health/social services and manufacturing. Meanwhile, construction workers were the main exception to the overall trend, reporting the least marked pressure on finances since January.
Expectations for finances in the next 12 months
EMBARGOED UNTIL: 09:30 (UK Time) August 19th 2015
August data indicated that the squeeze on UK household finances worsened for the second time in the past three months, which brought the headline index down further from its post-crisis peak. This was highlighted by a fall in the seasonally adjusted
Looking ahead, UK households are slightly downbeat on balance about their financial prospects for the next 12 months. At 49.1 in August, the index measuring the outlook for financial wellbeing over the next 12 months was up from 48.6 in July, but below the neutral 50.0 value and still much weaker than the survey-record high seen in January (53.3).
Positive sentiment among private sector workers (index at 55.7 in August) again contrasted with expectations of worsening household finances among public sector employees (index at 47.1). Meanwhile, by age group, there was a particularly
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￼sharp moderation in year-ahead expectations among those aged 18-24, with the index hitting its lowest level since November 2013.
Workplace activity, job security and incomes
August data indicated a robust and accelerated upturn in workplace activity, with the seasonally adjusted index rising to 54.9 from 54.2 in July. This was the highest reading since February, but still below those seen through much of 2014.
At 50.5 in August, the seasonally adjusted index measuring income from employment was down slightly from 50.9 and only fractionally above the 50.0 no-change value. Nonetheless, the index has now registered in positive territory for eight months running, which is the longest sustained period since the survey began in 2009.
Meanwhile, the seasonally adjusted index job security index dropped to 46.5 in August, which was the joint-lowest reading since March 2014. Reduced job security was recorded among both private sector and public sector employees in August. Construction workers were the main exception to the overall downward trend.
Current and future inflation perceptions
Current inflation perceptions among UK households were unchanged from the seven-month high recorded in July. At 65.0 in August, the latest reading was nonetheless still lower than at any time prior to January 2015.
However, the index measuring expected living costs over the year ahead picked up to 81.5 in August, from 80.1 in the previous month, to signal the strongest inflation expectations recorded by the survey so far this year.
Households’ views on next move in Bank of England base rate
August’s survey indicated that UK households continued to bring forward their expectations regarding the next interest rate rise by the Bank of England. The proportion of households anticipating a rise in the base rate over the next six months reached 48% in August, its highest level since July 2014. Moreover, this figure has doubled over the past two months (24% in June, and 34% in July).
On a 12-month horizon, just over three-quarters of UK households (78%) foresee a rise in the Bank of England base rate, which is the highest proportion since July 2014. Moreover, this figure has jumped from 54% in June and 62% in July. By contrast, in August 2013, just after ‘forward-guidance’ was announced by the Bank of England, the survey indicated that only 33% of UK households expected a rate rise within the next 12 months.
Households’ views on next move in Bank of England base rate*
￼* “The interest rate set by the Bank of England is currently 0.5%. Please let us know when and how you think the Bank will next change interest rates by choosing one of the options below: Please choose one answer.” Historical data available upon request.
Tim Moore, senior economist at Markit, which compiles the survey, said:
“The survey’s gauge of UK household finances has slipped again from the six-year peaks seen earlier in 2015, suggesting that the boost to consumer sentiment from falling inflation has started to lose its intensity.
“Improving economic fundamentals and gradually rising income from employment should continue to support household finances through the remainder of this year, but the ongoing strains reported in August highlight an underlying fragility around the edges of the recovery.
“Meanwhile, UK households appear to have coalesced behind the view that the Bank of England will raise rates at some point over the next 12 months. The proportion expecting a base rate hike over a one-year horizon now stands at 78%, which is the greatest since July 2014 and well above the low of 33% recorded by the survey after the Bank’s forward guidance statement in August 2013.”
Markit Household Finance IndexTM (HFITM) – United Kingdom