UK household pressures ease, rate hike expectations rise - IHS Markit

Financial pressures eased for UK households in October while rate hike expectations rose, according to the latest survey from IHS/Markit.

The Household Finance Index rose to 43.8 this month from 42.8 in September, marking the weakest financial strain in four months and matching the June reading thanks to an increase in workplace activity and softening inflation perceptions.

However, the need for unsecured credit continued to rise while income dropped for the first time since January.

Meanwhile, households’ pessimism over their finances in the next 12 months eased, with the future household finance index rising to its highest level in nine months, surpassing the post-financial crisis average. This increased confidence meant households were more keen to spend on big ticket items such as cars and holidays.

The survey also revealed a big shift in base rate expectations, with over 40% of households now expecting a rate hike before next year, up from 12% in the previous survey.

“October data presents the difficult scenario for the Bank of England. On one hand, low rates continue to stimulate consumer demand in a period of uncertainty and muted growth. On the other, as the public’s expectations build and inflationary pressures continue to erode household budgets, the MPC’s reaction will be close to call,” said IHS Markit economist Sam Teague.