MNI: UK Household Perceptions Of Own Finance Go Negative - BOE

By David Robinson

     LONDON (MNI) - UK household balance sheets deteriorated and households'

expectations of their financial position over the next 12 months turned, on

balance, negative, a survey for the Bank of England found.

     The NMG Consulting Survey for the BOE, published Friday, found that the

perception that Brexit will harm the UK economy has became widespread while

household finances were squeezed by the rise in inflation and pessimism

increased.

     NMG's survey for the second half of 2017, with responses collected in

September, found that for the first time in three years the net balance of

households expecting their financial position to improve over the coming 12

months was negative, with the balance falling from barely positive to close to

-4%.

     Close to a net 30% expected the general economic situation to deteriorate

over the next 12 months with nearer a net 40% anticipating the Brexit process

would have a negative effect.

     Incongruously, households on balance expected the Brexit effect to push up

their spending. BOE economists pointed out that this was probably because

households, hit by higher inflation, expected their nominal, non-discretionary,

spending to rise.

     The expected increase in spending is "likely to represent a nominal effect,

rather than an increase in spending once adjusted for the rise in price

inflation. This is also supported by both a rise in household inflation

expectations in the latest survey and a pickup in expectations of nominal income

growth since the 2016 H2 survey," a report on the NMG survey in the BOE

Quarterly Bulletin stated.

     The survey was carried out before the November Bank Rate hike but it took a

detailed look at borrowers funding and debt levels, and spelled out why the

impact of the 25 basis point hike would be cushioned.

     Most mortgagors are on fixed rate mortgages and they will only see the

impact of the hike on their debt payments once their fixed rate deal comes to an

end.

     In all, NMG found 38% of respondents with a mortgage were on a floating

rate contract, with a further 5% on a fixed-rate contract expiring in 2018.

Typically, UK fixed rate mortgages, however, are only short-term, running for

two or three years, so 62% of mortgagors were expected to be impacted by the

rate hike by the start of 2019.

     Some of these households, who took out fixed rate mortgages when the yield

curve was higher, could actually see repayments decrease.

     The proportion of households with high debt-to-income ratios, however,

while having risen recently is still markedly below pre-global financial crisis

norms.

     "Following a 25 basis point increase in their mortgage rate, only 2.5% of

mortgagors would need to take action to find the extra money, rising to 7.5% for

a 50 basis point rise," the survey found.

     The implication is that household indebtedness is not going to be a major

hurdle to future monetary policy tightening.

     The survey, overall, however meshes with the BOE Monetary Policy

Committee's view that growth in discretionary consumer spending is likely to be

subdued.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

[TOPICS: M$B$$$,M$E$$$,M$$BE$]