By Trevor Clawson

Britons are becoming more optimistic about their personal finances, according to an extensive new survey from Vouchercodes, but separate research suggests that, for some at least, 2018 might be a troubled year.

Buoyant consumer confidence is a precious commodity. When individuals are feeling positive about the state of their finances, they are more likely to spend on goods and services, and that willingness to part with cash is an important driver of growth in the wider economy.

So the good news is that  Britons are feeling at least a little bullish. In a poll of 2002 adults commissioned by online discount operator Vouchercodes, 75% of those taking part said they were feeling positive about the year ahead. That confidence was due – at least in part – to an expectation of improved financial circumstances, driven by rising pay and higher disposable income. Respondents predicted (on average) a disposable income of £360 per month in 2018, compared with £349 in the previous year.

Not a Universal Picture

It isn’t a universally positive picture. The UK economy is continuing to grow but with inflation currently hovering around 3.0% -well ahead of average wages – many workers have seen a fall in living standards over 2017. And the situation is not expected to improve. Recent reports from the TUC and Merrill Lynch Bank America suggest the value of British pay packets will be squeezed to the tune of -7% and -5% respectively in the year ahead.

Concerns over inflation and the future direction of the British economy are reflected in the Vouchercodes Personal Finance Optimism Grows But There Could Be Storm Clouds Aheadreport, which sees a significant minority (25%) feeling negative about the future. Those who saw 2017 through the prism a glass half empty cited the impact of higher household bills, rising food prices, the weak pound and uncertainty over Brexit as reasons to be less than cheerful.

Nevertheless, the dominant mood was modestly upbeat, prompting Paul Lewis, Senior Director of Marketing at VoucherCodes to comment:

“It’s reassuring to see the nation feeling positive about their finances for the year ahead, despite ongoing economic uncertainty having an impact on the cost of living for many in the UK.”

Winners and Losers as Priorities Change

A £11 (average) rise in monthly disposable incomes is not, however, going to create a nation of big spenders and if the report is to be believed, Britons are preparing to allocate more cash to some areas of their lives while cutting back on others.

And that appears to be good news for the travel and tourism industry. The report found that 39% of Britons were planning to spend more on holidays in the year ahead, making it the biggest priority. Otherwise, there was a focus on ‘sensible’, essential spending, with 16% prioritising household renovations and 14% planning to pay down existing debt. Only 9% were planning to buy a new car.

When respondents were asked about areas in which they planned to cut back, takeaways and meals out (26% and 24%) topped the chart, while 21% said they aimed to reduce spending on expensive groceries. 16% intended to do less socialising in bars and clubs.

Making Plans

Whether those good intentions pan out in practice remains to be seen, but what certainly does seem to be true is that Britons – aware of the continuing economic uncertainty – are assessing their priorities making spending plans accordingly.

“As prices on day to day expenditure continue to rise, we expect to see a rise in Brits shopping around to try and get the best deal for themselves – or indeed making sacrifices and cutting down on smaller indulgences like takeaways and daily coffees to help save up for bigger expenses like holidays,” said Paul Lewis.   

For a Rainy Day  

The prevailing mood of cautious optimism is also reflected in an intention to put something more aside for the inevitable rainy day. Last year, those taking part in the survey said they planned to save an average of £196 a month. This year that figure rose to £221`.

In some cases, the savings plan is aimed at achieving a short-term goal – 25% are saving for holidays. Others, such as the 15% who intend to top up their retirement plans – are stashing cash for longer term., Despite high costs in the capital, Londoners are set to be the most ambitious savers, with plans to put aside £349 a month.

Personal Finance Optimism Grows But There Could Be Storm Clouds Ahead

Storm Clouds on The Horizon 

If the Vouchercodes survey paints a modestly optimistic picture of the nation’s personal finances, figures published by accountancy firm RSM provider a reminder that for many individuals and families, there may be trouble brewing in the year ahead.

As RSM points out, 2017 marked a rise in personal insolvency procedures. Crunching numbers published by the Insolvency Service, the accountancy firm noted a 9.4% rise in formal processes, including bankruptcies, individual voluntary arrangement (IVAs)  and debt relief orders.

And in particular, there was a 20% rise in IVAs in both 2016 and 2017, suggesting that an increasing number of people were prepared to enter into a five-year process aimed at clearing their debts. 

“There are clearly growing levels of financial distress in some households, due in part to rising interest rates, falling wages or changes to employment status, said  Alex Pillmoor, personal insolvency partner at RSM., ‘Over the last two years, there’s been a 23 percent increase in the number of people entering an insolvency process. This is despite employment levels being at a record high. high levels of indebtedness – even for those with regular incomes –  is such that they have no option but to enter one of the insolvency routes.”   

Taken together, the reports arguably paint a complementary rather than contradictory picture. For those who in better-paid jobs, the personal finance outlook does seem to be improving, but with overall levels of debt remaining high, Britons are planning to spend any additional income wisely.