Household inflation expectations hit 19-month low in July

Household inflation expectations hit a 19-month low in July while job security rose, according to the seasonally-adjusted IHS Markit Household Finance Index.

The index rose to 44.6 in July, an increase on June’s reading of 43.6 and the second-highest since December 2016, indicating a more positive outlook for household budgets. IHS Markit credited the 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 that UK households anticipate a softer squeeze from inflationary pressures over the next year, with the July recordings revealing perception towards current inflation eased to the lowest in more than a year.

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

“Strong labour market conditions alongside a solid increase in spending activity signalled improving economic conditions and consumer confidence in the UK,” he added.

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

Furthermore, the index revealed that 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 49.4in June, just marginally above the neutral 50 mark.

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 from July illustrated that approximately 30 per cent of households expected the Bank of England base rate to increase within the next three months, up from the 22 per cent figure reported in June, with around half of all respondents expecting a rise by the end of the year.

Moneyhub CEO Samantha Seaton stated that households were finally feeling a bit better off and their optimism was 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."

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