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Financial wellbeing squeezed as cost of living surges – survey

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Households’ financial wellbeing fell sharply at the end of 2021, a survey showed on Wednesday, as savings came under pressure and the cost of living rose.
The Scottish Widows Household Finance Index, which measures households’ overall perceptions of financial wellbeing, fell to 40.1 in the fourth quarter from 44.0 in the third. It was the fastest fall since the second quarter of 2020, when the UK was in the first national lockdown.

The survey also showed that savings had been squeezed to the greatest extent since the end of 2013, with one in five respondents reporting they were not saving any money at all.

Expectations for future financial wellbeing also fell, from 49.2 three months previously to 43.8, the lowest since the third quarter of 2020.

Scottish Widows said rising inflation coupled with concerns surrounding the Omicron variant had weighed heavily on expectations. Inflation currently stands at a decade-high of 5.1%, well above the Bank of England’s 2% target, and is expected to peak at around 6% in the spring. The BoE unexpectedly upped interest rates in December in response.

Concerns over job security also increased, the survey found, to the weakest level since the first quarter of 2021. While a number of respondents reported further growth of workplace activity during the quarter, many also experienced a reduction in income from employment.

Emma Watkins, management director of retirement and longstanding at Scottish Widows, said: “It was a challenging end to another year dominated by the pandemic for UK households.

“With inflation soaring into the new year, and cash availability at its lowest since 2014, households’ expectations of future financial wellbeing were the most downbeat since the third quarter of 2020.”

The survey, which is compiled by IHS Markit and was first conducted in February 2019, is based on monthly responses from around 1,500 people aged between 18 and 64.

A reading above the neutral 50.0 level indicates improvement, while a reading below that suggests deterioration.

Scottish Widows is part the Lloyds Banking Group.

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