Household budgets tightening as access to credit disappears

According to a recent survey by IHS Markit, household budgets had been squeezed dry as Britons found it increasingly difficult to borrow.

Access to credit fell at its fastest rate in two-and-a-half years in November, despite demand for borrowing increasing every month since June 2016.

In real terms, British households experienced a decline in earnings as wage increases had failed to keep up with the rate of inflation and the increasing cost of everyday items, including groceries, in the wake of the Brexit vote.

Retailers, which had already experienced the first year-on-year fall in sales in October since 2013, could also feel the effects of the borrowing shortage during the all-important Christmas trading period, as consumers begin to curtail their spending.

Sam Teague, an analyst at IHS Markit, said the survey's data showed an increasingly tight squeeze on household incomes.

"On one hand, income levels have risen at a subdued pace over the past 12 months. Whilst, on the other hand, inflation has sharpened, forcing households to utilise unsecured debt and dip into savings to bridge the gap," Teague said.

However, Ruth Gregory of Capital Economics said that in the New Year, the high rate of employment in the UK should start to create better earnings for British households.

"Looking ahead, with inflation now close to its peak and the tightening in the labour market set to deliver a bit of an acceleration in wage growth, spending growth should soon be on a more sustainable footing and reliance on unsecured credit should diminish," Gregory said.