The year 2021 has been a tough one for UK households so far. The furlough scheme has ended, household debts have crept up and there has been a lot of chatter about getting employee work-life balance right as remote working continues. As households across the country grapple with new financial challenges and ever-changing economic conditions, many of them have been forced to adapt and find new ways to cope with the emerging financial challenges. The response has varied across the country, and across income levels. From an increase in spending to efforts to cut spending, here is a glimpse into how households across the UK are coping financially.
UK Households Feel The Financial Effects Of Pandemic Worse Than EU Peers
When it comes to the financial fallout of the ongoing pandemic, UK households are at the top of the list of those affected. In the year prior, the average household income levels in the UK, Germany, and France were all similar, according to JP Morgan’s After Shocks report. However, closer examination revealed a widening social security net between households. This was evidenced in the UK’s poorest households having 20 percent lower household incomes than those in France. So while the possibility of households experiencing negative employment changes like loss of employment remained constant in both the UK and France, the economic shock was felt much more in UK households.
This, of course, has led to wider financial challenges for households across the UK. For instance, 1 in 3 households has slashed their spending in response to dropping income levels and loss of income. It has also meant that those households hit by income loss have taken on more debt to meet their living expenses. Financial lifelines including fast £200 loan and other popular quick credit options have soared in popularity. More than 9 million people have been forced to borrow more to cope with the pandemic’s impact. According to the Office Of National Statistics, the percent of workers borrowing £1,000 or more increased from 35 percent to 45 percent.
UK Households Also Lead The Pandemic Saving Spree
On a bright note, UK households have also caught the saving bug. In fact, households stockpiled over £220 billion in savings– an impressive feat on a global scale. As the average savings pot hit a record high this year, there is also renewed hope for a smoother recovery even after record-high job losses. However, UK consumers were also predicted to splash out some of their record high savings over this past summer as restrictions eased- £38 billion or £719 per person to be exact. So what exactly are they spending it on? Well, dining out and holiday spending are leading the charts as many capitalise on lifted restrictions.
Inflation Creates an Additional Strain
Rising inflation rates across the UK alongside soaring costs of living have meant that households in the UK are feeling an additional strain on their finances. In August, prices increased by 1.2 percent. It is expected that the UK’s poorest households will take the brunt of the price increases, as necessities like their weekly grocery shop become out of reach. For those on low incomes, the worry of affording their weekly shop is already present- only to be further compounded by inflation and rising prices. There is also the removal of the temporary £20 per week Universal Credit which kicked in this October and further reduced the household income. It is expected that both the reduction of income and rising costs will further push more households to seek more debt options.
As for what lies ahead for UK households, optimism is waning. The Scottish Widows Financial Index showed an overall score of 49.2 for the third quarter of 2021. Many of them have also changed their financial goals including consideration of intergenerational financial planning. Approximately 10 percent of households are now contemplating intergenerational planning for their finances. The good news: UK households are slowly becoming more proactive about their financial health and outlook. The bad: budding inflation rates and tight economic conditions are making it more difficult for them. The outcome is up in the air for anyone to guess.