IHS Markit Household Finance Index Registers Its Highest Reading In February 2020

The IHS Markit Household finance index which mimics the consumer confidence in the United Kingdom has registered a value of 47.6 in February 2020; the highest value recorded on the Index since its inception eleven years ago. The gain on the Index comes amidst a number of other leading economic indicators also rallying in the northward direction during the past two months. It is worth mentioning here that the United Kingdom went into General elections on 12 December 2019 which saw a sizeable majority victory for Prime Minister Boris Johnson followed by the 31^st January 2020 Withdrawal of the United Kingdom from European Union.

The past few years have been tormenting for the people of the United Kingdom. The pre-Brexit political and economic uncertainties and the negative trading environment ensuing from it had caused a lot of business disruptions in the country. People during the period have been uncertain about their future and had started spending less and saving more for the future. The government also, during the period implemented austerity measures which resulted in the shrinking of the overall value creation in the economy while in the corporate, world companies postponed their expansion plans and started to withhold more cash in anticipation of difficult times ahead. All of the above, plus the constant bickering of policymakers on both sides, who could not decide on the modalities of the withdrawal for a long time, led to a gloomy atmosphere in the country.

Economists at IHS Markit, the compilers of the Index, have stated while making observations on the data that this increase in confidence levels will give reasons for the Bank of England not to cut interest rates in the near future. The bank in its last meet during the end of January 2020 had decided against lowering its policy rates despite overwhelming anticipation among economists and other market participants that it will do so. The bank which had been following a loose monetary policy during the past three years when the pre-Brexit turmoil was in full effect and it struggled to bring back economic growth to the economy despite its maximum efforts. In fact, by the end of December 2019, the then Governor of Bank of England had warned that the country faced a real threat of falling into a liquidity trap should interest rates in the country be allowed to fall further. However, by the time the date of decision making there were a lot of economic indicators which had already started showing signs of recovery thanks, to the results of the 12 December 2019 general elections which provided confidence to the bank not to drop interests rates further.

Among the major economic indicators that have seen a positive shift are the construction activity in the country, mortgage transactions in the country, hiring in the financial sector of the country, rise in the activity levels in the services sector of the country and the stabilising in the manufacturing activity in the country which had been on a free-fall during the past few months. The above instances clearly demonstrate that the business environment in the United Kingdom post-Brexit is a changed one. The increased business activity this time around also entails a high number of people getting employed in the country. Over the past forty-five years when the United Kingdom was part of the European Union, deep business ties have been forged within the member countries. British businesses have benefited from cheap labour arriving from other European countries which not only made them cost-effective but also helped them to expand their operations globally. However, now with the European Union regime gone, there are new restrictions in place on the movement of people between the two economic blocks with the ensuing effect that it is now difficult to get workers from other European countries and existing European Union workers working in the United Kingdom would have to leave the country sooner. This temporary shortfall of the working age population has brought about renewed demand for domestic supply of workforce in the country, which in short to mid-term will lead to a spike in the wage rates. This increased demand for labour will certainly boost confidence among the average citizens, which will be visible in increased spending behaviour or improved consumer confidence.

The survey done by IHS Markit measures the financial well-being of British citizens with a poll conducted among 1500 responders. The data compiled by pollster Ipsos Mori for the month of February marked an increase of three points over January 2020 index value of 44.6. The Index since the 2008 financial crisis has never touched a value of 50, which as per the manual of IHS Markit is the point from where growth in overall consumer confidence levels ensues. The index values thus signify worsening economic conditions in the country if below fifty and improving economic conditions if the index value is above fifty. The survey, along with the current evaluation of consumer confidence, also takes stock of the future perception of citizens about the economy and what prospects they see for themselves. The results of this survey are published by IHS Markit in the form of the future household finance index, which measures the expectations of household financial health for the next twelve months. For the month of February 2020, the value on this Index stood at 52.7 compared to a January 2020 value of 49.6. This value which represents a growth in economic activity in the country in the next twelve months as perceived by the average British citizens is the highest index level reached, surpassing the prior peak reached in January 2015.

Both of these indices reflect an increasing level of optimism of the general public about the economy and their future in general. The indices indicate increased spending by the average consumers in future periods and provide early indications of growth in several sectors of the Economy. These indices, among several other leading economic indicators registered in January and February 2020, indicate a robust recovery for the British economy from the doldrums of the Pre-Brexit era.