UK households said to face sharpest squeeze in three years

LONDON (Reuters) – British households’ financial situation has deteriorated at the fastest rate in three years this month, as families increasingly shy away from big purchases such as cars, vacations and household appliances, a survey showed on Monday.

Financial-data company IHS Markit said its monthly Household Finance Index dropped to 41.8 from June’s 43.7, its lowest since July 2014, reflecting an ongoing squeeze on household incomes as inflation rises faster than wages.

“There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns,” said Tim Moore, a senior economist at IHS Markit.

Official data due on Wednesday is forecast to show that economic growth picked up only slightly in the three months to the end of June. Analysts polled by Reuters expect an expansion of 0.3%, compared with 0.2% in the first quarter, or half Britain’s long-term average growth rate.

Subdued growth may stay the hand of the Bank of England when it considers next week whether to raise interest rates for the first time in a decade. Some policy makers have already called for a rate hike due to worries about persistent price pressures.

IHS Markit said just 27% of the households it surveyed expected rates to rise in the next six months, the lowest proportion since October.

The survey also showed that households’ willingness to make big purchases fell to its lowest since December 2013.

This tallies with downbeat results from British electrical retailer AO World, which reported on Friday that annual sales growth slowed to 2.5% in the three months to the end of June, compared with 12.9% in the preceding year.

British consumer price inflation reached its highest in nearly four years in May, at almost 3%, before slowing in June. But annual wage growth was less than 2%.

“July’s survey highlights that the recent moderation in inflationary pressures has yet to provide much relief,” Moore said.