Financial optimism highest since financial crash, data reveals

Hope hits a record high with more manageable living costs and perceived job security

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UK consumers are more positive about their money today than at any time since the financial crash, according to data that shows a growing number of households feel their financial affairs are healthy and expect things to improve in the next year.

Financial wellbeing perceptions hit a record high for February, as more consumers reported higher levels of job security, an improving property market and more manageable living costs, among a range of factors influencing household budgets.

The IHS Markit Household Finance Index, which measures households’ overall perceptions of financial wellbeing in a bid to predict consumer behaviour, found a “notable rise” compared with just a month ago, which experts say could help reassure the more cautious members of the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates.

More than a quarter of Britons now expect a base rate cut, the study suggests.

“The report signals a number of developments that should keep the Bank of England doves at bay and build optimism towards the UK’s immediate economic prospects,” says Joe Hayes, an economist at IHS Markit.

“Living cost perceptions suggests that a further slowing of inflation in the UK is on the horizon. Household inflation expectations were also trimmed, which bodes well for near-term consumer spending prospects given that nominal wages are still robust. A key driving force in 2019, a continuation of this trend will be crucial in 2020 as well.

“Housing market data were also upbeat, with current prices perceived to have risen strongly in February and expectations signalling further growth over the coming year,” he adds. “Less concern towards job security, which was heightened by various uncertainties last year, could also help stimulate demand.”

After more than three years of property market stagnation, new data from Rightmove suggests property asking prices, if not final sale prices, are now just £40 short of “hitting an all-time high” as buyers come out of hibernation prompted by political instability.

“The uncertainty around Brexit, coupled with three general elections since 2016, has meant that buyers and sellers have long waited to see what happens on the political front,” says Tomer Aboody, director of property lender MT Finance.

“Now we have a majority government which has confirmed that Brexit will finally go ahead, which has sparked off a quick frenzy in the market from waiting buyers.

“The fact that asking prices are rising isn’t surprising, since there are still fewer sellers than buyers. If we look at the trend of when asking prices are at their highest, it tends to be those times when estate agents’ stock is at its lowest levels and demand outstrips supply.”

With the general election now behind us, this level of optimism hasn’t been seen since the IHS study was first conducted in February 2009. More than half of the respondents – just under 53 per cent – expect their financial health to improve over the next 12 months.

With indicators like personal credit card debt and mortgage arrears both falling, albeit slowly, they may be right.

But the figures, which are calculated by adding together the percentage of positive respondents and half of those who don’t feel their financial position has changed either way, are still below the neutral 50.0 mark when it comes to current circumstances, which shows financial health across the country is still under a lot of pressure.

The Money Charity warns that the average total debt of every UK adult is now almost £31,650, including mortgages, for example. Up by £876 in the last twelve months, that’s the equivalent of more than 110 per cent of a typical full-time gross salary. The study also preceded the news of Sajid Javid’s unscripted departure as chancellor last week, taking with him the anticipation of several measures in the upcoming Budget announcement that would have directly affected consumer finances.

“One of the key pillars of the Conservatives’ election success was the perception that they could be trusted with the economy, and the country was hoping for a period of stability within Westminster,” says Rachael Griffin, tax and financial planning specialist at wealth management business, Quilter.

“This was supposed to be a low-key reshuffle but instead we have yet another key ministerial change. It is really not a good look for the Chancellor to quit less than a month before their first Budget, and it leaves a host of issues hanging in the balance.

“This now throws into doubt the entire contents of the budget that has been reported as possible in the media,” agrees Kevin Brown, savings specialist at Scottish Friendly.

“[The news] brings back fresh uncertainty for savers and investors that was thought gone when the prime minister won his hefty mandate in December.”