Financial wellbeing deteriorates across UK households in Q4 2021

UK households saw their financial wellbeing deteriorate in Q4 2021 at the fastest rate since the second quarter of 2020, according to findings published by Scottish Widows.

The pension provider’s latest Household Finance Index suggested that surging living costs led to the steepest fall in cash availability since the start of 2014.

According to the index, which measures households’ overall perceptions of financial wellbeing, fell from 44.0 in Q3 to 40.1 in the final quarter of 2021, as household savings were squeezed to the greatest extent since Q4 2013. The latest survey also revealed a slight reduction in income from employment.

Scottish widows suggested that inflation worries meant that households were “increasingly pessimistic” towards their future finances ahead of 2022, with the respective seasonally adjusted index down from 49.2 to 43.8. In fact, sentiment was 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.

“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,” commented Scottish Widows managing director of retirement and longstanding, Emma Watkins.

“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.”

Survey data covering UK households’ plans for the future highlighted that around two in five households (41%) were saving for emergencies during Q4, a figure up noticeably from one in three (34%) in the first quarter of 2021.

Unexpected expenses are also continuing to impact some households’ cash flow. One in five (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, almost a quarter (23%) of 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. Scottish widows said that this trend highlights a continued impact on some households’ financial resilience from the pandemic.

“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,” Watkins added.

“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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