UK Household Finances Weaken On Rising Inflation, Weak Wage Growth-Survey
First Published Sunday, 22nd April 2012 11:16 pm - © 2012 Dow Jones
LONDON -(Dow Jones)- U.K. households were more downbeat about their financial prospects in April as real wages continue to fall, while inflation expectations rose for a second straight month, a survey showed Monday.
And, while the monthly Markit household finances survey showed that views on jobs security improved, plans to make major purchases dropped back as debt levels rose and the outlook for earnings sank.
"U.K. households faced an even greater uphill challenge to maintain their living standards in April as squeezed disposable incomes meant finances deteriorated at the fastest pace for three months," said Tim Moore, senior economist at Markit.
"Higher debt levels and a renewed upturn in inflation expectations were the main setbacks in April, which in turn brought the outlook for household finances to its lowest in 2012 so far," he said.
While average earnings in the three months to February remained low at 1.6% U.K. consumer price inflation remains stubbornly high after a surprise year-on-year increase of 3.5% in March, up from February's 3.4% gain. That means that real wages continued to fall as the cost of goods rose at more than twice the pace of Britons' wages.
The higher price of certain food stuffs and non-alcoholic drinks drove the increase in inflation while higher fuel costs also lifted prices compared with February. This meant basic costs incurred by households rose across the board, leaving little room for additional, non-essential spending.
And, there are an increasing number of warnings that inflation may not slow as quickly as the Bank of England said it would in its latest quarterly forecast. The BOE's current forecast is for consumer price inflation to drop back to around the central bank's 2% target rate by the end of the year. But, as fuel costs rise again and concerns grow that food prices could rise if the drought in the U.K. makes for a bad crop, the increasing number of warnings are being echoed by the public.
Markit said inflation expectations rose for a second straight month in April, and to the highest level since November last year.
"Worsening household finances during April are especially disappointing as it follows some signs that the consumer gloom had started to lift in the first quarter of the year," Moore said.
The preliminary reading of first quarter gross domestic product is due this week when economists surveyed by Dow Jones Newswires expect quarterly growth of 0.1%. While that would be a weak result, it would mean that the U.K. avoided a return to recession after a disappointing 0.3% contraction in the final quarter of last year.
However, the risks to the forecast are numerous and several economists say that even though their central forecasts are positive, a contraction wouldn't be a major surprise. And, if the Office for National Statistics reports a fall in the first quarter it "will likely be a major drag on household spending into the summer," Moore said.
-By Ilona Billington, Dow Jones Newswires, +44 20 7842 9452;