Squeeze on household finances weaken as employment loss fears dwindle, reports Team IFM
London,June 4: Households in the UK are upbeat about future finances, as fears over job security hit its lowest level in more than five years and squeeze on savings turned out the weakest in May, an independent survey report released recently said.
At 42.4 in May, the seasonally adjusted Markit Household Finance Index (HFI) – which measures overall perceptions of financial wellbeing – was below the neutral 50.0 threshold, but remained close to the survey-record high of 43 posted in April.
The latest reading of the Markit HFI, which is intended to anticipate changing consumer behaviour accurately, signalled the second-weakest squeeze on household finances since the survey began in February 2009, Markit said in a statement recently. The HFI data is collected by market research company Ipsos MORI from its panel of about 1,500 respondents aged 18-64.
Markit’s survey report comes close on that heels of another that said recruitments are swelling as UK’s economy could be back to its pre-meltdown figures in June, while official statistics showed manufacturing gathering steam and trade figures improving in March.
In another reflection of the general sense of well-being, an industry body said, the critical construction sector registered a slight upswing in April.
Earlier this month, the National Institute of Economic and Social Research (NIESR) said by its estimates, the UK economy was just 0.17 percent below its pre-recession peak at the end of April, an indication that this could well be behind the feeling of optimism.
“Subject to data revisions and the uncertainties surrounding any out-of-sample predictions, it can reasonably be expected that the peak will be regained within the next month or so,” said NIESR, Britain’s longest established independent economic research institute.
Alongside, data released by the Chartered Institute of Purchasing and Supplies showed construction companies continued to record strong output rises during April for the 12th straight month, though at their slowest pace since October.
It said two factors seemed to be fuelling the current stretch of construction sector expansion – the wettest winter in 250 years necessitating new building and repair work, and a general economic wellbeing, as reflected by the first quarter growth of 0.8 percent.
“The latest survey highlights that improving labour market conditions and relatively subdued increases in living costs are delivering an appreciable overall boost to household finances,” said Tim Moore, senior economist at Markit.
HAPPY HOUSEHOLDS
The Markit report said households were helped by another moderation in inflation perceptions and improving labour market conditions, with the latter highlighted by a robust expansion of workplace activity and the lowest degree of job insecurity since the survey began in early 2009.
“As a result, some of the strains on savings were alleviated in May, with households recording the lowest pressures on savings for at least five years,” it added.
Expectations for finances in the next 12 months were also found to be on a high. At 51.9 in May, Markit said, the seasonally adjusted index measuring the outlook for financial wellbeing over the next 12 months was unchanged from the survey-record high recorded in April.
“Households have now indicated a positive outlook for their financial wellbeing in three of the past four months, contrasting with five years of downbeat sentiment prior to February 2014,” Markit said.
Upbeat assessments of future finances reflected strong optimism among those working in the private sector, while those employed in the public sector remained highly downbeat about their financial outlook.
Workplace activity, job security and incomes May data pointed to a robust and accelerated rise in workplace activity, with the latest expansion the steepest since the survey began in early 2009, Markit said.
At 57.1, up from 56.3 in April, the index has now posted above the neutral 50.0 threshold for the past two years.
A sharper increase in workplace activity led to reduced job insecurity during May. Moreover, households indicated that fears over job security were the lowest since the survey began in February 2009.
Meanwhile, income from employment increased for the sixth month running in May, but the rate of growth remained only marginal.
CURRENT AND FUTURE INFLATION PERCEPTIONS
Current inflation perceptions dipped for the seventh successive month in May. At 74.4, down from 74.9 in April, the seasonally adjusted index signalled the slowest increase in living costs since December 2009.
Households’ inflation expectations remained subdued compared to those seen on average since the survey began over five years ago, though the seasonally adjusted index measuring expected living costs over the year ahead rose slightly to 88.7 in May, from a 52-month low in April (87.7).
“May data pointed to the weakest pressure on savings for over five years, helped by modest rises in income from employment and a renewed drop in inflation perceptions, said Markit economist Moore.
“Looking ahead, households remain upbeat about their financial prospects for the next 12 months, supported by another drop in job insecurities as confidence in the recovery takes hold,” he said.
“Indeed, workplace activity increased at a survey-record pace in May, providing an early sign that the UK economy is expanding strongly over the second quarter of 2014.”
GROWTH PUSH
The primary reason for the bullishness is real wages, which NIESR said was expected to grow this year, despite currently being about 6 percent below their 2009 level.
The institute also noted that unemployment rate has fallen by one percentage point in the past year, and was expected to drop to close to 6 percent from 2015.
The NIESR report was upbeat about the overall economic growth of UK, observing that after growing only very marginally in 2012, it accelerated rapidly to around 3 percent year-on-year.
“We forecast GDP growth of 2.9 per cent this year, an upward revision of 0.4 percentage points on our forecast published just three months ago,” it said.
“This means that GDP will exceed its previous peak in 2008 in the next few months, although per capita GDP still remains well below its previous peak, and will not exceed it before 2017.”
NIESR also lifted GDP growth forecasts for 2015 through to 2017 to about 2.4 percent. “We do not expect them to make up that lost ground until 2018 or so,” it said.