The Bank of England has this week warned UK households to expect a reduction in their standard of living in the short term. This comes amid signs that softness in the UK employment market, with concerns that unemployment has not yet peaked, could lead to pay cuts, pay freezes and below inflation rate pay increases in the short to medium term. When you also consider that the price of goods in the shops is rising faster than the average household income it is easy to see where the squeeze will come from.

How long the squeeze on household budgets will last depends purely and simply on the UK economy and the expected recovery in the short to medium term. However, if the economy was to turn downwards this would place yet more pressure on family budgets and we could see more people pushed towards the edge of financial oblivion. These are very difficult times for the UK economy and indeed households across the UK will continue to feel financial pain long after the UK economy has pulled well away from the recession.

It is becoming more and more evident that the Bank of England is placing a more negative spin on the UK economy and the prospects for family finances in the short to medium term. Quite why the bank has turned so negative so quickly will no doubt become evident in the weeks and months ahead but it is starting to concern many investors and families in the UK.

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