LONDON (Reuters) - British households’ gloom about their finances deepened this month, and most now expect borrowing costs to rise again within six months after the Bank of England raised interest rates in November, a survey showed on Monday.
Data company IHS Markit said its Household Finance Index, a monthly gauge of financial well-being, fell to a seven-month low of 42.2 from 42.9 in January.
Conducted over six days starting on Feb. 8, the day the BoE said it was likely to raise rates sooner and by more than it previously thought, the survey showed 60 percent of households expected a hike within six months, up from 45 percent in January.
Britain’s economy slowed in 2017 as higher inflation - fuelled by the post-Brexit referendum fall in the pound - hurt the spending power of consumers. The BoE has said it expects the squeeze will ease in 2018 as inflation cools and weak wage growth ticks higher.
But Monday’s report showed households are not feeling optimistic.
“The latest survey adds to evidence that UK households have seen an erosion of their financial wellbeing so far this year, with stubbornly high inflation the main factor placing pressure on consumer budgets,” Tim Moore, associate director at IHS Markit, said.
Households reported only a weak rise in income from employment in January, a possible concern for the BoE which predicts an acceleration of wage growth in 2018. Official figures on wages covering the three months to December are due on Wednesday.
Separate figures from the Chartered Institute of Personnel and Development showed that major employers expect to raise pay by less than inflation in 2018.
The median basic pay increase over the 12 months to December 2018 was likely to be 2 percent, unchanged from 2017, CIPD members from nearly a thousand employers said.
This contrasts with a BoE survey of major private-sector employers last week which pointed to pay rises of 3.1 percent this year - the biggest in a decade.
IHS Markit also reported a sharp drop in households’ appetite for major purchases, chiming with data last week that showed retail sales volumes barely rose in January, capping the weakest three-month stretch since April last year.
A Reuters poll of economists published last week showed the BoE is likely to raise interest rates to 0.75 percent in May.
The IHS Markit survey, conducted by Ipsos MORI, polled 1,500 British adults.
Reporting by Andy Bruce; Editing by Hugh Lawson