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Householders' finance expectations remain steady after Brexit vote

Europe - Brexit jigsaw pieces

Householders' personal financial expectations remained steady in September, evidence of a lack of concern around the country’s vote to leave the European Union.

Financial data firm Markit’s Household Finance Index stayed broadly flat at 44.8 in September from its August level of 44.9 (50 = no change in household finances), maintaining the rebound from a plunge in July shortly after Brexit vote.

Financial pressures have been relatively muted throughout 2016 on average (44.4), even in the face of June’s vote to leave the EU, said Markit.

By sector, construction workers were most upbeat about their financial prospects.

Manufacturing employees were also relatively optimistic.

In contrast, those working in finance/business services reported the bleakest outlook since May 2012.

The prospect of further monetary policy easing appears to have reduced in September, according to UK households. Around 25% of those surveyed expect the Bank of England’s next move to be another rate cut, compared to 39% in August.

However, only a small minority of households are forecasting an imminent rise in the base rate. Just 8% of respondents anticipate higher interest rates before the end of the year, and this only rises to 20% when the outlook period is extended to six months.

Households are instead forecasting tighter monetary policy over a longer term horizon. Roughly 38% anticipate an increase in the base rate within the next year. More than half (55%) see interest rates rising within two years. Both percentages are the highest since the EU referendum.

Philip Leake, economist at IHS Markit, which compiles the survey, said: “Barring a minor dip in July, UK households’ financial expectations have appeared largely unmoved by June’s surprise Brexit vote.

“September data signalled a broadly stable financial outlook for the second month running.

“Similarly, the current strain on finances remained subdued relative to post-recession trends.

“A swift monetary policy response and a more settled political picture have likely helped to allay fears of a severe downturn.

“Moreover, the latest survey highlighted muted inflation perceptions, as well as sustained growth of workplace activity. As a result, worries about job security eased but pay growth slowed to a six-month low.

“With inflation remaining low in spite of the weak pound, and confidence in the economic outlook partially restored, households revised their expectations of a further cut in the base rate. Around 39% had expected interest rates to fall again rather than rise in August, but this proportion dropped substantially to 25% in September.”

The online survey of about 1,500 people was conducted by Ipsos MORI between September 14-18.

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