Rising living costs squeeze UK households’ financial wellbeing

UK household finances took a hit in the fourth quarter of 2021, according to a new report.

A quarterly index compiled by Scottish Widows shows the fastest fall in UK household financial wellbeing since the start of the pandemic. Overall perceptions of financial wellbeing fell from 44.0 in Q3 to 40.1 in the final quarter of the year — the biggest deterioration in the index since the second quarter of 2020, with the 50-mark separating improvement from worsening in the household’s financial situation.

It came as surging living costs led to the steepest fall in cash availability for almost eight years and consumers worried about the impact of inflation.

Many households also experienced a reduction in income from employment and there were concerns about job security, particularly in December as a result of the Omicron variant.

And with rising living costs hitting household budgets, pressure intensified on people’s saving and disposable income. Only the highest earners added to their short-term saving pots during Q4, with lower earners struggling to put money aside, Scottish Widows said.

“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,” said Emma Watkins, managing director of Retirement and Longstanding at Scottish Widows.

“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.”