The UK financial reality index sees no recovery yet

LONDON | The slight, although gladly acknowledged, fall in unemployment in the UK caused an improvement of the economic background rate from 63.4 to 65.3. It has been the only positive news released Monday by Alliance Trust, whose UK financial reality index noted a deterioration in households' financial situation during the second quarter of this year. In any case, the number being below 100 signals trouble, and it has been under 100 for 12 months.

The rest of the sub-indexes were more pessimistic. The household budget index fell to 61.3 from 67.5, a drop that has left the rate at its lowest since the third quarter of 2011. It has been under the 100 mark for more than two years. Alliance Trust said real disposable income has decreased, too, which made heavier the burden of mortgage payments and made ineffective a decline in inflation.

The weakest component was the net wealth index, which fell from 67.5 to 57.4. Linsey Thomson, analyst at the Alliance Trust Eco

nomic Research Centre, said that the British economy is not in recovery mode.

“Financial conditions facing households up and down the country remain very tough. The index and all three sub-indices are still well below the critical level of 100 , indicating that conditions remain weaker than the long term average. In Q2, the index was pushed even lower due to renewed weakness in housing and equity markets, together with a fall in disposable incomes and continued lacklustre economic activity,” Thomson explained.

“Hopefully, continued falls in inflation through the rest of the year will help to alleviate some of these challenging conditions but, with unemployment still high and wage growth muted, households look set to face difficult conditions.”

Financial Reality Index versus Household Expenditure

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