General election called for July

A general election has been called for July, earlier than many had expected, UK Finance said in its Household Finance Review for the first quarter of 2024, published in June 2024¹. The review said the vote "may also bring a change in policy priorities later this year"¹.

The review, which covers trends in consumers' financial behaviour through the first quarter of 2024, said that while such political events inevitably create some short-term uncertainty, any new measures that impact on households or the housing market are unlikely to be felt until next year¹. It gave no detail of what those measures might be, and no party's proposals are set out in the document¹.

The election call comes against a backdrop the review describes as easing but not resolved. CPI fell back sharply to 2.3 per cent in April, though this was not quite as big a fall as the Bank of England and other forecasters had expected¹. Services inflation fell only to 5.9 per cent and core inflation remains elevated at 3.9 per cent¹. Total earnings were growing at 5.7 per cent in the three months to March, meaning wages have been rising in real terms for nearly a year¹.

On tax and pay, the review sets out measures already in effect rather than anything tied to the election:

The review said markets were expecting the first reduction in Bank Rate to come later in the summer, with an outside chance a majority could be swayed for a cut in June¹. The Bank upgraded its growth forecast in its May Monetary Policy Report, expecting growth of 0.5 per cent this year and one per cent in 2025¹.

Why it matters for households

The review's point is about timing rather than direction. Any new measures affecting household finances or the housing market are unlikely to be felt until next year, it said¹. That means the tax, pay and rate changes already in effect are the ones shaping budgets through 2024: the April National Insurance cut, worth an additional £606 a year in take-home pay for basic rate taxpayers when combined with the autumn reduction, and the 9.8 per cent rise in the national minimum wage¹.

Borrowers on variable or reversion rates face Bank Rate held at 5.25 per cent, with the first cut expected later in the summer rather than in June¹. The review also noted that borrowing over the longest possible terms is much more prevalent than before, most notably for first time buyers, and that mortgage arrears rose for the sixth consecutive quarter, though the rate of increase has slowed¹. Possessions increased in the first quarter but remain low compared with historic norms, with most relating to mortgages taken out well before responsible lending rules came into place in 2014¹.

Consumer confidence was broadly stable in the first quarter but sentiment remains overall pessimistic and lower than before the pandemic, and expectations of making a major purchase moved sharply downwards¹. The review said spending and borrowing capacity remain constrained, with prices and interest rates still considerably higher than in recent years¹.

What happens next

The election takes place in July¹. The review said any new measures that impact on households or the housing market are unlikely to be felt until next year¹. It also said further modest increases in mortgage arrears are expected through this year as cost and rate pressures persist¹. No detail of post-election policy has been reported in the review.