Household finances at their least worst for 53 months

A good news/bad news moment.

How's this for a good news/bad news data release: the Markit Household Finance index is at its highest level since February 2010 (that's good); its highest level since 2010 is just 40.8, where anything below 50 is worsening (that's bad).

The HFI is the consumer-centric brother to Markit's more famous PMIs, which measure business activity across the construction, manufacturing and services sectors. The HFI questionnaire asks individuals about the state of their household finances, their expectations for their finances, and their expectations for the country's finances. It's then all compiled into a index where 50 is equal to "no change". With that in mind, it's easy to see that the state of Britain's households are both equal to the highest they've been since February 2009, when the index began; and far, far below par:

Markit's Chief Economist adds:

 

Improving household finance trends are an early indication that the UK economy has continued to strengthen in June. Households’ perceptions of financial stability are now at a level unsurpassed over the past four-and-a-half years. Better labour market conditions helped reinforce the upturn in households’ financial expectations during June, as rising levels of workplace activity translated into diminishing job insecurities. However, income from employment dipped at the fastest pace for five months, highlighting that pay restraint remains the order of the day. With households receiving little in the way of wage rises over recent months, a fall in inflation perceptions to their lowest since mid-2010 was an important factor in alleviating some of the strain on finances during June.

Some other tidbits from the release:

  • Around 26% of survey respondents signalled that their finances worsened in June, while almost 8% noted an improvement.
  • Of the main housing categories, people that own their property outright were the least downbeat (43.4). This was followed by mortgage holders (41.9).
  • Reduced job insecurities and higher workplace activity nonetheless failed to translate into rising income from employment in June. At 48.4, down from 51.1 in May, the index reached its lowest level for five months.

The index has the quirk of measuring perceptions, rather than concrete values. So there's some – for instance, employment income – where the data gives some interesting insights. In nominal terms, wages have been rising, but in real terms they've been shrinking for years. What the index suggests is that workers don't take either of those data points as the canonical description of their income, instead using some mixture of the two.

It also highlights the problems with an index like this, though. Regardless of inflation, it is probably untrue to say your income is falling if in nominal terms it's not. Self-reported datasets, in the end, say more about how people feel than how they actually are. And people feel less bad now than they have been for quite some time – but they still aren't exactly happy.

Doing the maths… Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Theresa May’s Brexit speech is Angela Merkel’s victory – here’s why

The Germans coined the word “merkeln to describe their Chancellor’s approach to negotiations. 

It is a measure of Britain’s weak position that Theresa May accepts Angela Merkel’s ultimatum even before the Brexit negotiations have formally started

The British Prime Minister blinked first when she presented her plan for Brexit Tuesday morning. After months of repeating the tautological mantra that “Brexit means Brexit”, she finally specified her position when she essentially proposed that Britain should leave the internal market for goods, services and people, which had been so championed by Margaret Thatcher in the 1980s. 

By accepting that the “UK will be outside” and that there can be “no half-way house”, Theresa May has essentially caved in before the negotiations have begun.

At her meeting with May in July last year, the German Chancellor stated her ultimatum that there could be no “Rosinenpickerei” – the German equivalent of cherry picking. Merkel stated that Britain was not free to choose. That is still her position.

Back then, May was still battling for access to the internal market. It is a measure of how much her position has weakened that the Prime Minister has been forced to accept that Britain will have to leave the single market.

For those who have followed Merkel in her eleven years as German Kanzlerin there is sense of déjà vu about all this.  In negotiations over the Greek debt in 2011 and in 2015, as well as in her negotiations with German banks, in the wake of the global clash in 2008, Merkel played a waiting game; she let others reveal their hands first. The Germans even coined the word "merkeln", to describe the Chancellor’s favoured approach to negotiations.

Unlike other politicians, Frau Merkel is known for her careful analysis, behind-the-scene diplomacy and her determination to pursue German interests. All these are evident in the Brexit negotiations even before they have started.

Much has been made of US President-Elect Donald Trump’s offer to do a trade deal with Britain “very quickly” (as well as bad-mouthing Merkel). In the greater scheme of things, such a deal – should it come – will amount to very little. The UK’s exports to the EU were valued at £223.3bn in 2015 – roughly five times as much as our exports to the United States. 

But more importantly, Britain’s main export is services. It constitutes 79 per cent of the economy, according to the Office of National Statistics. Without access to the single market for services, and without free movement of skilled workers, the financial sector will have a strong incentive to move to the European mainland.

This is Germany’s gain. There is a general consensus that many banks are ready to move if Britain quits the single market, and Frankfurt is an obvious destination.

In an election year, this is welcome news for Merkel. That the British Prime Minister voluntarily gives up the access to the internal market is a boon for the German Chancellor and solves several of her problems. 

May’s acceptance that Britain will not be in the single market shows that no country is able to secure a better deal outside the EU. This will deter other countries from following the UK’s example. 

Moreover, securing a deal that will make Frankfurt the financial centre in Europe will give Merkel a political boost, and will take focus away from other issues such as immigration.

Despite the rise of the far-right Alternative für Deutschland party, the largely proportional electoral system in Germany will all but guarantee that the current coalition government continues after the elections to the Bundestag in September.

Before the referendum in June last year, Brexiteers published a poster with the mildly xenophobic message "Halt ze German advance". By essentially caving in to Merkel’s demands before these have been expressly stated, Mrs May will strengthen Germany at Britain’s expense. 

Perhaps, the German word schadenfreude comes to mind?

Matthew Qvortrup is author of the book Angela Merkel: Europe’s Most Influential Leader published by Duckworth, and professor of applied political science at Coventry University.