UK households more pessimistic as living costs rise

UK households are feeling more downbeat about their finances, a survey showed on Wednesday, as a post-lockdown surge in confidence faded and living costs surged.

The Scottish Widows Household Finances Index, which measures overall perceptions of financial wellbeing, dipped to 44.0 in the third quarter from 44.7 in the second and 42.0 in the first.

The last time the index fell quarter-on-quarter was in the three months to June 2020, during the first national lockdown.

The financial outlook index - which measures household expectations for the next 12 months - also fell, to 49.2 from 50.3.

Scottish Widows, which compiles the index in conjunction with IHS Markit, said there had been a rise in household income from employment, the first since the first quarter of 2020. Households were also more optimistic about job security as a result.

But the amount of cash households had available to spend fell, which the pensions firm said highlighted how rising living costs were partially offsetting increased employment income. Savings declined at the fastest rate since the end of 2020.

Jackie Leiper, pensions, stockbroking and distribution director at Scottish Widows, said: "UK households recorded slightly weaker trends as the post-lockdown recovery began to subside and living costs surged. Overall financial wellbeing and cash available to spend fell at slightly quicker rate than in the second quarter.

"Around 10% of households are now considering intergenerational planning, which suggests that Covid-19 has made more families think about how important it is to consider being financially prepared for the unexpected."

Ipsos Mori interviewed 4,500 adults aged between 18 and 64 across the UK at three points during the quarter: 8 to 10 July, 19 to 23 August, and 2 to 5 September.