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Households 'raid savings and borrow amid tightest spending squeeze since 2014'

Households are experiencing the tightest squeeze on their spending power since the summer of 2014, according to an index.

But people are opting to keep up their spending rather than tighten their belts, by dipping into their savings and turning to borrowing, according to the Markit Household Finance Index.

A "sharp and accelerated" squeeze on households' financial wellbeing is largely being driven by renewed pressures on the amount of cash available to spend - which has fallen at the fastest pace seen since August 2014, the report said. S trong rises in living costs and weak pay growth are behind the squeeze.

The survey asks 1,500 working age people across Britain about their finances. Readings above 50 signal an improvement, while those below 50 suggest the situation is getting worse. The latest survey took place in April.

The overall household finance index reading fell to 42.5 in April, from 43.1 in March. April's reading was one of the lowest seen since the summer of 2014.

Despite the squeeze on financial wellbeing, the research suggests consumer spending remains resilient - with households reporting the fastest rise in spending since June.

There was evidence that households are eating into their savings as their spending power is squeezed, with the strongest decline in household savings reported since July 2014. The report said there were also signs that spending had been kept up through greater demand for non-mortgage credit.

Concerns have recently been raised over Bank of England figures showing a strong growth in consumer credit. The Bank's quarterly Credit Conditions Survey of banks and building societies said last week that lenders expect to impose stricter credit scoring criteria for people trying to take out credit cards in the coming months.

Households' expectations for their finances in 12 months' time picked up in April, financial data company IHS Markit found, with a reading of 47.9, up from a four-month low of 45.5 in March. The increase was mainly due to renewed optimism among private sector employees.

But sentiment among people aged 55 to 64 over their future finances bucked the general trend, with the financial outlook among this age group worsening to one of the lowest levels seen since the summer of 2014.

Workplace activity was broadly unchanged in April, with a reading of 54.7 compared with a reading of 54.9 in March. People in the manufacturing and construction sectors were the most upbeat in April.

But when it came to job security, there was a bigger decline in household sentiment, with a reading of 46.6, down from 47.1 in March. The latest reading marked the fastest fall in job security this year so far.

Just over half (56%) of households expect the Bank of England base rate to increase from 0.25% in the next 12 months.

Tim Moore, a senior economist at IHS Markit, said: "April's survey data reveals that pressures on UK household finances have returned to levels last seen in the summer of 2014, as rising inflation and subdued pay growth have created a renewed squeeze on cash available to spend."

He continued: "Evidence that consumers are opting to maintain spending rather than belt-tighten provides a positive signal for UK economic growth in the short-term."

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