With an uncertain Brexit looming on the horizon, a survey shows British households are nervous about their future finances, despite rising employment and increasing confidence to spend their earnings.
Financial data company IHS Markit said its monthly Household Finance Index rose in August to its second-highest level since it was launched nine years ago—to 45.9, up from 45.0 in July.
The August HFI survey showed the lowest degree of pessimism towards current financial wellbeing since January 2015.
However, the survey also showed that households’ pessimism about how their finances would fare over the next 12 months was the greatest since March 2017, when British Prime Minister Theresa May fired the starting gun on a two-year period of Brexit negotiations.
“Strong labour market conditions gave households the confidence to continue ramping up spending levels in August,” said Sam Teague, an economist at IHS Markit.
“That said, the specter of higher living costs on the horizon and ongoing Brexit uncertainty both contributed to renewed worries towards future household finances,” he added.
The UK leaves the EU in just seven months, leaving little time for the complex negotiations on the future relationship with the 27-state trading bloc.
The prospect of no deal being struck, and of trade and customs arrangements not being in place in time—often dubbed “crashing out” of the EU, or a “disorderly Brexit”—has worried markets in recent months.
Some analysts, including Goldman Sachs, believe that it is odds-on for an orderly Brexit, with the UK and EU hammering out an agreement at the eleventh hour.
The UK Secretary for International Trade recently put the odds of a “no deal Brexit” at 60:40, and Bank of England boss Mark Carney said that the chances of were “uncomfortably high”.
UK foreign secretary Jeremy Hunt warned of a sharp fall in the value of the pound in the event of a no deal Brexit, according to the Financial Times.
Sterling dropped by 8 percent on the day that the UK voted to leave the EU.
Britain’s unemployment rate sank to a new 43-year low of 4.0 percent in the three months to June and the share of people in work is only a fraction off a record high, data showed last week.
The survey also found nearly 73 percent of respondents expected another Bank of England (BoE) interest rate hike in the next 12 months, down only slightly from July’s survey.
The BoE raised interest rates for only the second time since the financial crisis on Aug. 2, and Governor Mark Carney said financial market expectations of one rate rise a year for the next couple of years was a good rule of thumb.
Market research company IPSOS Mori interviewed 1,500 people for IHS Markit between Aug. 9 and Aug. 13.
Reuters contributed to this report
