The financial position of British households: evidence from the 2018 NMG Consulting survey

Quarterly Bulletin 2018 Q4
Published on 21 December 2018

By Lisa Panigrahi of the Bank’s Macro Financial Risk Division and Harry Rigg and Emma Rockall of the Bank’s Structural Economics Division.

  • Households’ expectations for their future income and spending growth held up in the latest survey (conducted between 5 and 26 September) with expectations for the wider economy remaining subdued.
  • The size of the tail of highly indebted households has fallen slightly over the past year — somewhat reversing the gradual deterioration observed since its post-crisis trough. By contrast, subjective self-reported metrics of household vulnerability showed a small increase.
  • The 25 basis point increase in Bank Rate to 0.75%, announced in August 2018, has already been passed through to higher interest rates for the majority of mortgagors on floating rates. The impact on borrower resilience and the availability of credit appears limited.
  • One way higher interest rates affect households is through the higher interest they pay (receive) on the debt (assets) they hold. New estimates suggest a 1 percentage point increase in Bank Rate could reduce consumption by 0.2% through this channel, a smaller effect than previously estimated.

Overview

The financial situation of households is a key determinant of how they respond to changes in the economy and monetary policy. At the time of the survey, households’ expectations for future income and spending growth held up, with expectations for the wider economy remaining subdued.

The size of the tail of highly indebted households has fallen slightly over the past year — somewhat reversing the gradual deterioration observed since its post-crisis trough. This appears to have been driven in part by stronger nominal income growth. In addition, mortgage interest rates have fallen for highly indebted households — likely reflecting borrowers refinancing onto lower mortgage rates.

In August 2018 the Monetary Policy Committee voted to increase Bank Rate by 25 basis points to 0.75%. Evidence from the NMG September survey suggests this has already been passed through to the majority of floating-rate mortgages. The impact of this on borrower resilience and credit conditions appears limited.

One way higher interest rates affect households is through the higher interest they pay (receive) on the debt (assets) they hold — the ‘cash-flow’ channel of monetary policy. New estimates from the latest survey suggest that a 1 percentage point increase in Bank Rate could reduce consumption by 0.2% through this channel, a smaller effect than previously estimated. This has primarily been driven by lower borrower sensitivity to interest rate changes.

PDFThe financial position of British households: evidence from the 2018 NMG Consulting survey

Excel2011-2018 NMG survey data (29MB)

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