Households optimistic about financial outlook for first time since 2016

HOUSEHOLDS are positive about their future finances for the first time since 2016, thanks to rising wages and softening inflation, according to the Household Finance Index (HFI), compiled by IHS Markit.

The financial expectations tracker hit 51.3 in July, up from 48.2 in June. This is above the 50-mark that indicates optimism rather than gloom.

At the same time families reported a modest but shrinking squeeze on their finances with the headline household finance index coming in at 44.6 in July, an improvement from 43.6 in June.

The improving outlooks reflect the end of a year-long pay squeeze in April, when prices had been rising faster than pay.

Official data showing wages now edging ahead of prices are backed up by IHS Markit’s survey. It shows pay growth slowed to a three-month low in July, but was still among the biggest improvements in the survey’s history. This continues a trend of stronger income growth seen since late 2017. There was an improvement in job security for the first time since the survey began in July. The latest figure was 50.2, up from 49.4 in June. Labour market conditions also improved faster in July than at any time since the index began in February 2009.

Household perceptions of current inflation fell to the lowest in more than a year, reflecting easing price rises since the start of the year. Households were also positive about their expectations of future inflation, which fell to a 19-month low. This optimistic outlook led to one of the fastest spending rises since early 2015.

Around 30pc of households forecast a rise in interest rates in the next three months, compared to 22pc in June. Half of households think there will be one before the end of 2018.

Sam Teague, an economist at IHS Markit, said: “July data indicated light at the end of the tunnel for UK household budgets. Strong labour market conditions alongside a solid increase in spending activity signalled improving economic conditions and consumer confidence in the UK.”

He added that “a marked improvement” in workplace incomes, as well as softer inflationary pressure, provided “another bright spot to the latest data”.

Despite uncertainty about Brexit negotiations, improving job security was reported for the first time since the survey began in 2009, he noted. “Resilient employment perceptions, higher incomes and perhaps a World Cup boost led to a solid increase in spending activity during July.”