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UK households fear inflation hit as average monthly income remains flat according to latest Scottish Friendly Disposable Income Index

  • Overall, UK households are not feeling better off as monthly disposable income remained relatively flat in the last quarter
  • Financial worries persist with over half (55%) of working age households most concerned about an increase in the costs of food
  • Nearly one in four aged 18-24 (24%) and one in six aged 25-34 (16%) spend more than their income on essentials, compared to just 9% of over 55s in this position

The latest Disposable Income Index (DII) published today by savings and ISA provider Scottish Friendly has revealed that over half (55%) of households are worried about an increase in the cost of food and more than four in ten (45%) are anxious about petrol prices. Financial worries persist with the potential for inflation to increase prices and the potential economic fallout from Brexit looming large in the background.

The quarterly report, which has been compiled in conjunction with leading think-tank the Social Market Foundation, reveals that disposable income remained relatively flat with the average household left with £990 after paying for essentials such as housing, groceries and bills,1 as forecasts remain mixed for the UK economy and the pound continues to fall.

However, with growth expected to slow in the wake of triggering of Article 50 and the dramatic fall in the value of sterling, many cite concerns about the impact inflation will have on their financial well-being, despite employment rates remaining at record highs.

With the result of EU referendum still fresh in the minds of many households, a large minority (46%) of the nation remain apprehensive about what impact the vote to leave will have on the pound in their pocket. The proportion of UK households spending more than their monthly income on housing costs has remained relatively flat at around 7%.

On the other side of the coin, people still feel secure in their jobs with employment at an all-time high, despite the uncertain outlook. A quarter of people (25%) are concerned that leaving the EU might affect their job. However, the younger generation were more worried about the impact with more than four in 10 of 18-24 year olds (44%) and 49% of 25-34 year olds saying they remain concerned their jobs are at risk.


Source: SMF analysis, 3Gem

With monthly disposable income staying relatively flat compared to last quarter, only 19% of households feel they have more cash left over at the end of the month than they did 12 months ago and half (50%) of households are worried about how they would deal with a big, unexpected bill, such as the car or washing machine breaking down, and only 35% believe they will be better off in 12 months’ time. While this is a similar proportion to Q3 and Q2, it is a slightly lower proportion than in Q1 2016, when the figure was 41%.

Exactly half of all households (50%) regularly save or invest each month – similar to the last quarter (52%). Despite derisory interest rates, Bank or building society savings accounts remain the most popular method of saving for consumers with over half (52%) using this vehicle, compared to just 15% who use a stocks and shares ISA.

Calum Bennie, savings expert at Scottish Friendly, said:

The results of our latest survey show the country is genuinely worried about the impact inflation is going to have on their day-to-day lives. This has come at an awkward time too as disposable income has remained relatively flat while prices have begun to rise in real terms in the run up to Christmas. While the impact of Brexit is still anyone’s guess, it is clear consumers are worried about the pound in their pocket not stretching as far as it used to.

Bennie continues:

When it comes to savings, we are sitting on an inflation timebomb. With the fall in the value of the pound and repeated warnings inflation will spike, many of us are continuing to stash our cash in high street savings accounts that may be offering interest rates well below the current rate of inflation. Indeed, those persisting with derisory rates of interest are simply losing money, and will be unable to react to price rises until it is too late. People may have taken the era of ‘noflation’ for granted and now is the time to get their finances in order and be prepared.

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