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Household Incomes Rising, but Consumers and Firms Still Squeezed

Households enjoyed the fastest growth in labour income in nine years this month but still suffered a squeeze on their finances due to stubbornly high inflation, according to IHS Markit.

Interest rates remain low, but inflation and anxiety levels are decidedly rising. Economic instability and political uncertainty weigh heavily on British businesses and consumers alike. The more households are squeezed by high inflation, the tighter the grip becomes on consumer businesses. New reports have revealed an increase in household income, with many consumers taking advantage of accelerated wage growth.

The Bank of England recently agreed to postpone an interest rate rise on account of poor economic activity, highlighting the poor economic landscape of the UK. While wage growth and employment are remaining steady, the financial situation for many businesses and consumers remains shaky. Inflation has recently increased, which along with high business rates and low profits, are further creating a dangerous platform for businesses on the high street.

The gloomy outlook that is hovering over British businesses cannot be shaken, further proven by the research group’s monthly household finance index. The index dropped to 43.4 in June, from 44.9 in May. Inflation has skyrocketed, with business owners facing low customer turnout, when prices become too high to afford.

Economic activity flips just as much as dips, with every rise too easily followed by a crashing fall. Household income may be improved but the UK economy is still not thriving, and business owners should take precautions to ensure they are prepared for every eventuality. At the Credit Protection Association, our debt recovery services free up cash flow and provide our Members with the financial cushion to prepare for any potential dips in the market.

Tim Moore, associate director at IHS Markit, said: “Despite improvements on the employment front, households remain relatively downbeat about their financial outlook.

June’s survey showed that 45 per cent of respondents expect an interest rate rise this year. About three quarters expect it within 12 months. Facing higher interest rates and higher inflation, household expectations for their financial wellbeing in the next 12 months have “moderated”. IHS Markit called it “entrenched pessimism”.

The gloomy outlook came despite the fastest increase in employment income since the survey began nine years ago. The index of job security was also at a nine-year high. Official labour market data bore out the job security finding, with unemployment at a 43-year low.

Now that wage packets are larger and the squeeze on households has loosened, consumer confidence could also improve. After months of poor consumer confidence, and poor profits for retailers, business owners are desperate for a shakeup in the spending behaviour of consumers. Household budgets have been historically squeezed tight, leaving many consumers to only purchase the essentials and leave clothing retailers out in the cold.

Improved wage growth should lead to busier high streets, but the unpredictability of economic behaviour could lead to only a very slight shift. As a result, businesses should accelerate the process. If larger household incomes are to make a difference to the economy, business finances should encourage it.

At the Credit Protection Association, our debt recovery services free up cash flow and provide our Members with the extra cash needed to expand and embrace new technology. As the Brexit deadline fast approaches, sustaining our competitive edge against rival economies should be in the forefront of business owners’ minds. This can be achieved through the prosperity and successful performance of the economy, and the good behaviour of its businesses.