Financial security is eroding at the fastest rate since 2020

Household finances are ‘deteriorating’ at the fastest rate since Covid-19 hit British shores, as soaring costs of living and other economic concerns hit consumers’ pockets.

According to long-term research, the amount of money people need to spend has seen the biggest drop since 2014. Meanwhile, pessimism about future finances has increased over the course of 2021, largely due to fears about inflation, job security and rising household debt.

Sentiment particularly fell in December, according to the latest Scottish Widows Financial Wellbeing Index, falling from 44.0 in the third quarter to 40.1 in the last quarter of 2021.

A score of 50 would mean no change over the last trimester, while a score above 50 would mean improvement.

The surge in negative sentiment came as household savings were the most squeezed since late 2013 and working people saw a slight drop in their average income.

As the rising cost of living has hit household budgets, pressure has intensified on people’s savings and disposable income, both shrinking faster than at any time in the past seven years. Only the highest earners added to their short-term savings pots during the fourth quarter. Almost a quarter of those with retirement savings said they would have plundered their pensions for cash to relieve the pressure if they could.

Meanwhile, personal debt levels have doubled in 2021, separate figures from recently revealed, following dramatic debt repayments in the first year of the pandemic crisis.

In December last year, six in ten Britons were in debt, with the average individual owed £25,879, more than double the £9,246 they owed in 2020.

Financial sentiment is now at its lowest since the fall of 2020, when we approached our first pandemic winter.

With the consumer price index (CPI) measure of inflation reaching a decade high of 5.1%, three-quarters of consumers are now worried about the impact of such high inflation on daily life as well as the savings they could have.

Rising home energy prices top the list of inflation concerns, with four in five older consumers particularly worried. Over generations, rising gas prices, not being able to save as much, and the purchasing power of liquid savings occupy our greatest financial concerns.

“With inflation reaching its highest rate since 2011, many people are facing a cost of living crisis as prices rise,” says Steven Cameron, director of pensions at Aegon.

“At an already very difficult time for households… a large proportion are worried about the immediate impact of inflation levels not seen in a decade on the affordability of daily life, rising gas costs and electricity at the cost of essential items such as clothing and food.

“There is no doubt that people on fixed incomes are facing a difficult time, and this includes pensioners who will be significantly affected by a significant gap between the current inflation level of 5.1% and the 3.2% much lower used to calculate next year’s state pension increase.

“A high proportion of those we surveyed said they feared they would not be able to save as much due to rising inflation as well as the declining purchasing power of cash savings.

“Those who hold large amounts of cash savings are particularly at risk from high inflation. Although the Bank of England raised interest rates in December to 0.25%, all that increase passed on to savers will probably be offset by inflation which will reduce purchasing power.

This week, the Liberal Democrats called on the government to drop what it described as a planned stealth tax raid that “will hit families who are already feeling the pinch”, as energy bills and the cost of living soar.

The party says the government’s decision to freeze personal tax relief and the higher rate tax threshold until 2025 will cost the average family in England and Wales £430 a year by 2026, making a total of £10.9 billion.

An analysis by the House of Commons Library, commissioned by the Liberal Democrats, has found the freeze will mean an additional 1.5million low-wage people will be sucked into paying income tax by 2026 , while an additional 1.25 million people will fall under the higher tax rate. support.

The research was based on modeling using the latest inflation forecasts from the Office of Budget Responsibility.

Sarah J. Greer