More bad news on living standards
Two important reports today underline the squeeze on living standards that is damaging domestic demand. The Bank of England’s Quarterly Bulletin emphasises the importance of this issue:
An important feature of this recovery relative to past ones — and a key reason why the pace of the recovery has been disappointing — is the weakness in household consumption. Consumption spending is estimated to have fallen by over 1% in the first half of this year alone.
The Bank and NMG Consulting carry out an annual survey of households’ financial positions and the latest is reported in the Quarterly Bulletin. And it’s a depressing read, even for a professional misery-guts like me:
Households reported that their income available after paying tax, housing costs, bills and loan payments had fallen, continuing the trend of the past four annual surveys. Households also reported that they had been affected by the fiscal consolidation, mainly through lower income and higher taxes, and that in response they were, for example, trying to increase their labour supply through finding a new job or working longer hours. Relative to the period before the financial crisis, more households continued to report that credit conditions were tight. Households, in aggregate, did not expect to change the amount they saved. And despite the considerable pressures on household finances, most reported levels of financial distress had not deteriorated, aided by the low interest rate environment and the forbearance shown by lenders.
48% of households said they had been hit by austerity, with just 34% “not heavily affected.” 69% expected to be affected in the future, 15% expected to be not heavily affected. 12% of households said they had had difficulty paying for their accommodation in the past 12 months; 7.5% had fallen behind with paying at least one important bill (up from 4.1% last year) and a majority of people with mortgages say they would be in trouble if interest rates went up by 3% or more. On average, households’ “monthly available income” is £46 less than it was a year ago – £552 a year. 7% said they had lost their job as a result of the government’s fiscal policies and 19% expected to be in the future.
Markit’s Household Finance Index is the latest indicator returning to levels last seen in the recession. The Index is constructed so that a score of 50 indicates no change in household finances from the previous month, while a lower score shows that things are getting worse; it’s only been running since February 2009, but I find it very useful.
- This month the Index fell from 34.6 to 34.3, the lowest level for four months; the HFI was briefly lower during the summer, but otherwise, this is the lowest level since the summer of 2009.
- 38% of households said their finances had got worse in the last month, just 7% reported an improvement; households reported the biggest fall in their incomes from employment since March 2009.
- There was also a big increase in debt (22% of households saw an increase) and a fall in savings (33% reported this).
- 49% of households expect their finances to be worse in 12 months’ time. This part of the HFI is slightly worse than it was a year ago and significantly worse than at the end of 2009.
The squeeze on households’ spending power is, as the Bank recognises, economically significant and austerity is an important reason not just for why people feel poorer (that’s been obvious for well over a year) but for why they actually are poorer.