Household financial wellbeing sees fastest fall since start of pandemic

UK households saw their financial wellbeing deteriorate at the fastest rate since the second quarter of 2020 during Q4, as surging living costs hit people’s pockets and led to the steepest fall in cash availability since the start of 2014.

Related topics:  Finance News
Rozi Jones
12th January 2022
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"One in five are not currently saving any money, slightly up from the same time last year, and almost a quarter would now consider withdrawing from their pension early if it was possible."

The latest data from Scottish Widows shows that household savings were squeezed to the greatest extent since Q4 2013. The latest survey also revealed a slight reduction in income from employment.

Worries about the impact of inflation meant that households were increasingly pessimistic towards their future finances over the course of 2022, with sentiment the most downbeat since the third quarter of 2020. Expectations in December were downgraded particularly sharply amid fears surrounding the new omicron Covid-19 variant.

Survey data covering UK households’ plans for the future highlighted that around 2 in 5 households (41%) were saving for emergencies during Q4, up noticeably from 1 in 3 (34%) in the first quarter of 2021.

Only 14% of UK households reported that they were regularly saving more for their retirement compared with a year ago, and 22% said less.

20% of those surveyed during Q4 reported that they had faced unexpected expenses in the last month, while 14% had seen their household income decline. At the same time, nearly a quarter (23%) of UK households said they would have been likely to withdraw money from their pension if they could have, rising to 27% for those aged between 35 and 44, highlighting a continued impact on some households’ financial resilience from the pandemic.

As rising living costs hit household budgets, pressure intensified on people’s saving and disposable income with both declining quicker than at any time in over the past seven years. Only the highest earners added to their short-term saving pots during Q4, with lower earners struggling to put money aside.

Emma Watkins, managing director of retirement at Scottish Widows, said: “It was a challenging end to another year dominated by the coronavirus pandemic for UK households as rising living costs pinched the pockets of people in the fourth quarter, causing finances to deteriorate at the fastest rate since Q2 2020. With inflation soaring into the new year and cash availability at its lowest since 2014, households’ expectations of future financial wellbeing were the most downbeat since the third quarter of 2020.

“As a result, the strain on current finances has had a knock-on effect to future financial planning. One in five are not currently saving any money, slightly up from the same time last year, and almost a quarter would now consider withdrawing from their pension early if it was possible. With the emergence of the Omicron variant adding to uncertainty, households will undoubtedly be hoping that the impact to their finances is modest as we enter 2022.”

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