The perception of financial wellbeing in UK households fell in August, according to data from the latest IHS Markit UK Household Finance Index.

The headline index from the survey fell from 41.5 in July to 40.8 in August, which IHS Markit said signalled a further, slightly sharper, deterioration in the financial situation of UK households.

Caution surrounding non-essential expenditure continued in August, with UK households recording a further reduction in their overall spending. The index indicated that the rate of decline did ease from July, but was still sharp. IHS Markit said this was not helped by falling cash availability, with survey data highlighting a marked reduction in the amount of cash available to UK households.

The survey is based on monthly responses from approximately 1,500 individuals across the UK, with data collected by Ipsos MORI from its panel of respondents aged between 18 and 64.

The survey measure regarding the need for unsecured borrowing returned above the 50.0 no-change mark in August, which IHS Markit said had indicated that households were again expanding credit facilities, such as overdrafts and credit cards.

“The latest survey data highlights a continued strain on the finances of UK households, with the headline figure dipping in August as pressure intensified slightly,” said IHS Markit economist, Lewis Cooper. “The 12-month outlook for finances remained highly negative amid substantial uncertainty surrounding the economic impact of the COVID-19 pandemic.

“Overall, the data hints at some worrying trends when put in the context of the significant recession facing the UK. Although lockdown measures are looser; households are spending less, earning less and unsure about their jobs, all of which has the ability to add severe friction to the pace of the economic recovery.”

The survey findings also revealed that workplace activity, income and job security August data had highlighted another reduction in income received from employment, with the latest decline sharp, despite easing further from May’s record drop.

IHS Markit said the survey measure of job security perceptions was also negative amid the ongoing COVID-19 pandemic and a substantial number of redundancies.

Tilney director financial planning, Zoe Bailey, commented: “In recent months, economic turmoil has had a profound impact on UK households and painted a gloomy picture of financial pessimism.

“With the UK now in a recession, figures from the IHS survey also spell out further pessimism for the next 12 months, as many will be at further risk of redundancy as spending plummets. And with the Government’s furlough scheme coming to a close in October, people will be thinking ahead to how their income will be affected.
 
“Now’s the time for households to take stock of their financial situation and plan for the unexpected. Making decisions like building up savings, a ‘rainy day’ fund or financial buffer can help with financial security in case people suddenly find they have less to spend.”

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