Households hold off on big purchases as price pressures squeeze budgets

 
Alys Key
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Brits are thinking twice before committing to big purchases like cars (Source: Getty)

British families are increasingly cautious about buying big-ticket items like cars and holidays as the average household budget continues to be squeezed.

IHS Markit said its monthly Household Finance Index dropped to 41.8, down from 43.7 in June, the lowest it's been since July 2014. The pressure of inflation on stagnant wages is thought to be the main reason for the change.

Consumers were less ready to spend money on holidays, cars and household appliances, the survey showed. Willingness to make big purchases fell to its lowest since December 2013.

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Tim Moore, a senior economist at IHS Markit, said: "There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns."

Several warning flags have appeared over the past month showing that a boom in consumer spending is coming to a halt.

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As annual wage growth stalls around two per cent, inflation hit nearly three per cent in May, before dropping to 2.6 per cent in June.

The Bank of England is set to decide next week whether to raise interest rates, a move which just one in four (27 per cent) of the IHS Markit respondents expected to happen in the next six months.

Read more: Pound slides as Ben Broadbent says he's 'not ready' to raise rates

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