UK households fear inflation hit as average monthly income remains flat - Scottish Friendly

Financial worries persist with the potential for inflation to increase prices and the potential economic fallout from Brexit looming large in the background.

The quarterly report, which has been compiled in conjunction with leading think-tank the Social Market Foundation, reveals that disposable income remained relatively flat with the average household left with £990 after paying for essentials such as housing, groceries and bills,1 as forecasts remain mixed for the UK economy and the pound continues to fall.

However, with growth expected to slow in the wake of triggering of Article 50 and the dramatic fall in the value of sterling, many cite concerns about the impact inflation will have on their financial well-being, despite employment rates remaining at record highs.

With the result of EU referendum still fresh in the minds of many households, a large minority (46 per cent) of the nation remain apprehensive about what impact the vote to leave will have on the pound in their pocket. The proportion of UK households spending more than their monthly income on housing costs has remained relatively flat at around 7 per cent.

On the other side of the coin, people still feel secure in their jobs with employment at an all-time high, despite the uncertain outlook. A quarter of people (25 per cent) are concerned that leaving the EU might affect their job. However, the younger generation were more worried about the impact with more than four in 10 of 18-24 year olds (44 per cent) and 49 per cent of 25-34 year olds saying they remain concerned their jobs are at risk.

With monthly disposable income staying relatively flat compared to last quarter, only 19 per cent of households feel they have more cash left over at the end of the month than they did 12 months ago and half (50 per cent) of households are worried about how they would deal with a big, unexpected bill, such as the car or washing machine breaking down, and only 35 per cent believe they will be better off in 12 months’ time. While this is a similar proportion to Q3 and Q2, it is a slightly lower proportion than in Q1 2016, when the figure was 41 per cent.

Exactly half of all households (50 per cent) regularly save or invest each month – similar to the last quarter (52 per cent). Despite derisory interest rates, Bank or building society savings accounts remain the most popular method of saving for consumers with over half (52 per cent) using this vehicle, compared to just 15 per cent who use a stocks and shares ISA.

Calum Bennie, savings expert at Scottish Friendly, said: “The results of our latest survey show the country is genuinely worried about the impact inflation is going to have on their day-to-day lives. This has come at an awkward time too as disposable income has remained relatively flat while prices have begun to rise in real terms in the run up to Christmas. While the impact of Brexit is still anyone’s guess, it is clear consumers are worried about the pound in their pocket not stretching as far as it used to.”

Mr Bennie added: “When it comes to savings, we are sitting on an inflation timebomb. With the fall in the value of the pound and repeated warnings inflation will spike, many of us are continuing to stash our cash in high street savings accounts that may be offering interest rates well below the current rate of inflation. Indeed, those persisting with derisory rates of interest are simply losing money, and will be unable to react to price rises until it is too late. People may have taken the era of ‘noflation’ for granted and now is the time to get their finances in order and be prepared.”