Household finances have shown continued signs of improvement in the second quarter of 2021, despite the extension of some lockdown measures across the UK.

The latest UK Household Finance Index from Scottish Widows revealed improved trends for savings and a more positive outlook towards the longer-term, as the easing of lockdown restrictions in Q2 helped firm up household balance sheets.

Scottish Widows also reported sentiment around job security and income picked up in Q2, as workers from many shutdown sectors returned from furlough.

The headline seasonally adjusted index – which measures households’ overall perceptions of financial wellbeing – rose from 42.0 in Q1 to 44.7 in Q2, which signalled the weakest deterioration in UK household finances since the COVID-19 pandemic began. Monthly data also pointed to a strengthening performance over the course of the quarter, with June's reading the highest seen since last February.

Scottish Widows pensions, stockbroking and distribution director, Jackie Leiper, said:
“As UK governments take a reasonably cautious approach to opening back up from lockdown, there are clear signs of growing consumer confidence.

“The more positive picture we can see this quarter is that more households are planning to use savings they have made during the pandemic to bolster their financial resilience.

“There was also good news for long-term financial planning, with more than two-thirds saying that they did not expect to have to delay retirement and around one in seven planning to increase regular pension contributions over the next 12 months.”

Scottish Widows also suggested the reduced financial strain in the second quarter fed through to a strong rebound in sentiment towards household finances over the next 12 months.

For the first time since Q1 2016, UK households are expecting their financial wellbeing to improve over the coming year, with those between the ages of 18 and 34 particularly upbeat about their financial outlook.

“The pandemic has led more young people to reconsider their financial priorities when it comes to protection, but although more have taken out insurance since March 2020, the majority of UK households remain exposed without life insurance, income or mortgage protection in place,” Leiper added.

“The near-term outlook for financial wellbeing was also much brighter during the second quarter, as many employees saw income rebound as workplace activity picked up and sentiment surrounding job security reached its highest for two years. Overall, UK households are now more optimistic towards their finances over the next 12 months than at any time since Q1 2016.”

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