UK Financial activity survey at record low
Faced with shrinking disposable income as a result of a rising tax burden on slowly rising wages, increasing interest rates, strong inflation and high utility bills, consumers recorded their lowest level of expected savings, investment and borrowing activity in December since the quarterly survey, commissioned by JGFR from GfK NOP, began in March 2002.
The FAB Financial Activity Index* fell to 93.2 from 99.7 in September. A year ago the headline measure was at a record high of 106.5.
All three of the major sub-indices fell. The FAB Savings/investment Index which has been strong for some 6 quarters, fell to 99.1, down from 104.8 in September and compares to 108.8 in December 2005. It is its lowest score since June 2004. The FAB Borrowing Index hit an all-time low for the second quarter running, down to 76.6 from 84.3 in September. Last year this measure was at 102.6.
Rising intentions to repay or pay down debt has been a feature over the past 2 years, but in the past 2 quarters there has been a marked reduction in intentions to repay debt. The latest FAB Debt Repayment Index fell to 84.1 from 93.5 in September and down from 114.5 in December 2005, to its lowest ever measure.
Big drop in car purchase plan index
All the 18 categories of savings, investment and debt related activities’ indices fell. Among those to fall steepest are the FAB Car Financing Plans Index – down from 105.3 to 81.9, a record low; the FAB Lump Sum Life & Pensions Index down from 129.4 to 116.2 as the post A-Day boom subsides, the FAB Cash Deposit Index, despite increases in deposit rates down from 125.6 to 114.0, its weakest score since September 2005 and the FAB Regular Life Insurance Index, down from 106.0 to 95.0.
Investor sentiment holding up
Investor sentiment weakened slightly in December, the FAB Equity Buying Index slipped from 145.1 to 136.2, although it is higher than in December 2005 (129.9). Fewer investors are set to sell in the coming months, with the FAB Securities Selling Index at its lowest since June 2005, suggesting that net retail sales should remain fairly strong. The best performing index is the FAB Government and Corporate Bonds Index currently standing at 138.7, down from 146.7 in September.
Housing market indicators weaken – mortgage puzzle deepens
The housing market indices point to weaker activity levels in the coming months. The FAB Property Purchase Index, which covers intending cash and mortgage home buyers fell back to 98.8 from 102.9 in September and compares to 103.5 a year ago. In contrast the FAB Mortgage Index is at its weakest-ever level (72.0), down from 75.1 in September and down from 97.1 over the past year.
The lower level of demand that consumers have shown for mortgage borrowing in the past year is in sharp contrast to the record figures of mortgage borrowing announced in recent months. This disconnect between weak consumer borrowing intentions yet robust mortgage borrowing continues to be the major puzzle of the current economic climate, particularly when job worries are at a post-Millennium high.
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