Pandemic’s economic impact strains UK household finances further

Fears over job cuts and other pandemic-induced impact drag the U.K. household finances more in August, according to a global information-provider firm.

It appears that Britons are becoming more cautious when it comes to money and spending as U.K. household finances outlook becomes gloomier. Per IHS Markit U.K.’s data, British households’ financial well-being is further collapsing after it dived in August from the previous month’s rating.

August household finances drop to 40.8

The data, which was published earlier this week, shows that the U.K. Household Finance Index is down to 40.8 in August following July’s 41.5—a sign that consumers expect a bleaker financial picture despite the U.K. government’s effort to revive the country’s economy.

“Caution surrounding non-essential expenditure continued in August, with U.K. households recording a further reduction in their overall spending. The rate of decline did ease from July, but was still sharp,” the analysts wrote in the report.

Pandemic’s economic impact strains UK household finances further

But before August’s decline, May, June, and July’s household finance index showed steady growth despite the ongoing health crisis.

A looming second wave of coronavirus cases across the country, however, changed its pace. The rising number of jobless people added to consumers’ worries as well and made them rethink their spendings. Reports of redundancies across several industries raised their concerns over possible job cuts as well, per the data.

The index measures households’ overall financial health. And if it passed above 50, it indicates improved household finances, which is not the case in IHS Markit’s latest data.

Index to fall further

At the same time, IHS Markit also emphasized that the data signals a “further, slightly sharper, deterioration in the financial situation of U.K. households.”

IHS Markit economist Lewis Cooper, for instance, said that the current index “hint at some worrying trends” if put in the context of recession the country is experiencing today.

Economists are wary of the rising number of job cuts and the end of the U.K.’s furlough scheme too. Last month, the GfK barometer for consumer confidence showed that fears over redundancies, health risks due to the coronavirus, and the end of the unemployment scheme are the top reasons consumer confidence is falling.

A forecast by EY Item Club also suggests that U.K. banks are likely to lend consumers less this year—whether it is personal loans or credit card debts—as Britons cut back on spending.

“Households are spending less, earning less and unsure about their jobs, all of which has the ability to add severe friction to the pace of the economic recovery,” Cooper explained.

Images courtesy of IHS Markit, Africa Studio/Shutterstock

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