U.K. household finances continue to stay under great pressure

The seasonally adjusted household finance index of the U.K. hinted that the squeeze on U.K. consumers continued in May. Furthermore, the extent of pressure on the financial wellbeing was amongst the sharpest seen for two-and-a-half years. The index dropped slightly to 42.4 from April’s 42.5, staying below the post-crisis peak seen in January 2015.

Looking at the average reading in the three months to May, the drop-in household finances was more rapid than seen at any time since autumn 2014. Deteriorating household finances showed a further steep rise in living costs in May. Although inflation perceptions eased to a five-month low, the index stayed higher than the average since March 2014.

Higher living costs resulted in one of the sharpest declines in cash available to spend for two-and-a-half years in May. Survey respondents also showed that their need for extra unsecured borrowing continued to recover from the lows seen in 2016.

U.K. households continue to be negative about their financial prospects in the next 12 months. The seasonally adjusted index measuring expectations for finances in 12 months’ time has stayed below the neutral 50 value since April 2016.

The seasonally adjusted index measuring workplace activity hinted the slowest rise since November 2016. The index dropped to 53.7 in May, down from 54.5 in April. Latest data showed that job security was slightly changed since April; however, there were divergent trends throughout employment sectors. Public sector staff expressed one of the most rapid declines in job security since October 2015.

In the meantime, private sector workers were the least negative regarding their job security for three months. This was aided by a noticeable recovery in sentiment across the construction and retail sectors. U.K. households continued to show sharp increases in their everyday living costs in May, with inflation perceptions amongst the highest reported since the first half of 2014.

However, the seasonally adjusted index eased to 78 from 81.4 in April. May data showed that inflation expectations eased further from the three-year peak seen in February. At 87.4, the seasonally adjusted index gauging expected living costs dropped from 89.3 in April and the lowest recorded so far in 2017.

The proportion of U.K. households expecting a rise in the Bank of England base rate in the next 12 months was 58 percent in May, up slightly from 56 percent in April and well above the level seen following the rate cut in August 2016.