Recent research from global information and insights provider TransUnion has revealed a further increase in optimism around household finances in the UK. More than half (54%) of those surveyed now feel optimistic about their current financial situation, up from 42% at the end of 2020[i].

This more confident outlook coincides with the successful UK rollout of the COVID-19 vaccine and the research indicates an overall strengthening of consumer finances as almost 7 in 10 (69%) households report they are faring either as planned or better than planned financially.

Kelli Fielding, managing director of consumer interactive at TransUnion in the UK said: “We’ve been tracking the impact of the pandemic on consumer finances for the past 12 months and it’s really positive to see the heightened sense of optimism in this latest data. However, despite this, our research also suggests that COVID-19 will cast a long shadow, with a significant portion of consumers taking a cautious approach when it comes to credit.

“While nearly a third (32%) of households are planning to apply for new credit or refinance existing credit in the next 12 months, just over a quarter (28%) have considered it but ultimately decided not to apply, mainly due to fear of not being approved. One in four (27%) cite concerns about their credit history, so helping consumers understand more about their credit information is really important. Around a quarter (23%) are concerned about their income or the affordability of further debt. That’s not surprising given 64% of impacted households say they won’t be able to pay their current bills, down from 70% in March[ii] last year.”

The research also suggests that the financial divide that has been exacerbated by the pandemic may have significant long-term consequences. Whilst only four in 10 households (38%) are currently being negatively impacted financially, many have had to use their savings to manage day-to-day, something which TransUnion has seen at a relatively consistent level since its study began.

“A fifth of UK households have reportedly either cut back on retirement savings or have used them to get by during the pandemic. Higher earning households, however, have actually been able to save more, with the drop in discretionary spending on things like leisure and travel meaning a quarter (25%) have added more to their retirement pots and 42% have saved into an emergency fund,” said Brendan le Grange, director of research at TransUnion in the UK. “Conversely, only 17% of lower earning households have been able to save for emergencies, with just 9% saving more for retirement, highlighting the longer-term view of the financial polarisation we’re seeing, which will serve to reinforce existing inequalities.”

As the UK looks toward the roadmap out of lockdown, with the reopening of non-essential retail and a cautious return to spending, finance providers need to be engaging with their customers in order to understand their specific needs, and using the latest tools and insights to help make informed decisions when it comes to lending.

Similarly, consumers need to have the knowledge and the tools to monitor and manage their credit information, and increasingly lenders are offering their customers direct access so that they can understand their credit score and the factors affecting it. This will be particularly important as protected payment holidays and other financial support measures come to an end.

Read the full Consumer Pulse report here or find out more about TransUnion’s Consumer Engagement and  Affordability Solutions.