Interest rate fears fuel drop in confidence

Interest rate fears could be behind fall in household finance confidence

Households' confidence in their future financial wellbeing has deteriorated to the most downbeat levels seen in a year, according to a report.

An index measuring the outlook for household finances over the next 12 months slipped back to the lowest mark in a year in July, according to the study compiled by Markit.

Recent suggestions from the Bank of England that interest rates could start to edge up around the turn of the year, alongside higher inflation perceptions, may have influenced consumers' mood, the report said.

The overall reading for the Markit Household Finance index stood at 45.3 in July, slightly up from a six-month low of 43.8 in June. Readings above 50.0 signal that households' financial situations are improving and readings below that point indicate a deterioration.

Construction workers were found to be the most downbeat, while on a regional basis the squeeze on finances was reported to be sharpest in the North East of England, according to the report, which surveyed 1,500 people aged 18 to 64 years old from across Britain.

People's perceptions of current inflation picked up to the strongest levels seen this year so far in July, although price pressures on households remain subdued compared with historic data, the report said.

Earlier this month, Bank of England Governor Mark Carney suggested that interest rates could begin to rise at the turn of the year. Mr Carney said he expected the bank rate to rise over the next three years from its current all-time low of 0.5%.

Markit's latest study found that 14% of households now expect interest rates to increase before mid-October, marking the highest proportion recorded so far in 2015.

The proportion of households forecasting a rate rise within the next six months increased to around one in three (34%), up from 24% in June.

Philip Leake, an economist at Markit, said: "Bank of England governor Mark Carney recently suggested that the base rate may rise around the turn of the year.

"This, perhaps alongside greater inflationary pressures, has led households to take a more hawkish stance towards monetary policy expectations, with around one in three respondents predicting higher interest rates over the next six months."