UK households feel biggest squeeze in three years as potential interest rates hike may make it worse

A survey suggests a Bank of England interest rate rise will hit household finances further

Stagnant wages and inflation has already hit household budgets (PA)

UK households are feeling the tightest squeeze on their finances in three years and the Bank of England’s signal that it is getting close to raising interest rates is likely to make things worse, a survey showed on Monday.

IHS Markit said its monthly Household Finance Index fell to 42.8 in September from 43.4 in August though above a three-year low of 41.6 seen in July.

Looking at the third quarter as a whole, the index’s average reading is its lowest since 2014.

British households have been pinched by fast-rising inflation since last year’s Brexit vote and weak rises in wages.

Monday’s survey showed the amount of cash available to spend continued to fall at one of the steepest rates seen over the past three years.

“With the Bank of England sounding increasingly eager to start hiking interest rates, the prospect of higher borrowing costs and increased mortgage payments is likely to hit households further,” Tim Moore, a director at IHS Markit, said.

Last week the BoE said it expected to raise interest rates in the coming months if inflation pressure continued to build, surprising many investors.

The IHS Markit survey showed households were also likely to be taken by surprise by the BoE’s change of tone.

Only 29 per cent of respondents expected a rate rise over the next six months, and just 12 per cent before the end of the year, IHS Markit said.

The survey of 1,500 people was conducted between before the 14 September announcement by the BoE.

Reuters