UK inflation fears top household concerns as survey shows rising prices strain savings and jobs

Rising prices have become the primary financial worry for UK households, according to a monthly consumer confidence survey released ahead of Wednesday’s official data, which is expected to show inflation remaining persistently high.

Amid concerns over higher interest rates driven by increased fuel prices following the closure of the Strait of Hormuz amid the Middle East conflict, households have grown “increasingly gloomy about their financial situation,” the report stated.

The survey by S&P Global, a data intelligence company, showed its consumer sentiment index fell to 42.1 in May from 42.3 in April, the lowest level since July 2023 when UK inflation surged due to the Russian invasion of Ukraine. The index aggregates household perceptions of spending, financial wellbeing, savings, debt and employment.

Maryam Baluch, an economist at S&P Global Market Intelligence, said that excluding periods of the COVID-19 pandemic and the Ukraine-related energy price spike, the index has not been this low since 2012.

The survey also indicated a “substantial decline” in household savings in May, dropping at the fastest pace since July 2023. This decline was driven by high energy prices and related costs “which have significantly strained household budgets,” the report said.

Baluch said: “Inflation worries have firmly taken centre stage. The rising cost of living is eating into savings at a rate not seen since 2011 if the pandemic is excluded, and is causing concern over future finances, in part due to growing conviction that interest rates are soon going to start rising.”

The survey of 1,500 people showed 51% anticipate a rise in interest rates, the highest proportion in two-and-a-half years. Rate-setters at the Bank of England have indicated they will likely need to raise borrowing costs this year if global oil prices remain high and push up inflation.

The Bank has warned that typical energy bills could rise 16% to £1,900 by summer and food prices could increase 7% by year-end. The latest Office for National Statistics figures showed UK inflation, as measured by the consumer prices index, rose to 3.3% in March from 3% in February. The April inflation rate, due this week, is expected to decline to 3% but remain above the Bank’s 2% target.

The S&P survey said job insecurity is at its highest since March 2023, while attitudes toward major purchases “remained markedly downbeat” and among the gloomiest in almost three years.

Baluch added: “Not surprisingly, this environment of squeezed finances, worries of higher interest rates and job insecurity is deterring spending to a degree rarely witnessed by the survey, which in turn looks set to dampen economic growth.”