Consumers ‘have fears about UK economy’

Apparently conflicting studies show a general optimism about the economy, but also a nagging fear that it could all go horribly wrong.

According to the Markit Household Finance Index (HFI) for May, people are feeling more positive in their financial outlook and more secure in their jobs than they have done at any time in the last five years.

A study by consumer group the HomeOwners Alliance and conveyancing provider Myhomemove, on the other hand, shows that more than one in three homeowners fear that a rise in interest rates will push them into financial difficulties.

Some said they might have to sell up and rent in the event of an interest rate rise, while others said they would even struggle to find money for food.

The seasonally adjusted HFI, which measures overall perceptions of financial wellbeing, is telling here. It registered 42.4 in May, which, happily, was close to the survey-record high of 43.0 posted in April, and yet, not so happily, still below the 50.0 neutral threshold.

This demonstrates how low a base sentiment has been tracked from, and also perhaps why people’s sense of wellbeing is so precarious.

Nevertheless, information provider Markit, which compiles the HFI each month using data collected by Ipsos MORI, said the result signalled ”the second-weakest squeeze on household finances” since the survey began in February 2009.

The same study includes an index measuring how people feel about their financial wellbeing over the next 12 months.

This was unchanged, at 51.9, from the survey-record high recorded in April.

Households have now indicated a positive outlook in three of the past four months, contrasting with five years of downbeat sentiment prior to February 2014.

However, the optimism reflected by this upbeat assessment of future finances was largely confined to those working in the private sector; public-sector workers remained highly pessimistic about their financial outlook.

The HFI also showed the steepest increase in workplace activity – and also the lowest rate of job insecurity – since the survey began. At 57.1, up from 56.3 in April, the index has now posted workplace activity above the neutral 50.0 threshold throughout the past two years.

Perceptions of inflation dipped for the seventh successive month in May, but households’ expectations of living costs over the year ahead rose slightly from April’s 52-month low – perhaps in response to April’s actual rise in inflation, to 1.8 per cent.

The Myhomemove / HomeOwners Alliance research found that 34 per cent of people were worried that an interest rate rise would put them in financial difficulties. Extrapolated across the UK, that would equate to to 5.8 million homeowners.

Younger homeowners were more fearful of interest rate rises, nearly half (49 per cent) of 25-34-year-olds saying an increase would cause them difficulties, compared with under one quarter (24 per cent) of over-55s.

Fears about the impact on households of an interest rate rise come amid recent speculation that action may be taken to subdue the housing market.

The Office for National Statistics reported this week that UK house prices had jumped by 8 per cent over the last year, and in the rampant London market they had soared by 17 per cent.

However, fears of any substantial interest rate rise appear to be unfounded, as the Governor of the Bank of England, Mark Carney, said recently that interest rates would not be raised to cool the housing market because the economy had “started to head back to normal”.

He added that rates were likely to remain low for some considerable time.