UK wealth manager St. James’s Place released its latest Financial Health Index this week. The index measures the UK’s wealth and wellbeing, and takes into account how comfortable and resilient regions feel to handle pressure on finances. 

St James's Place Financial Health Index shows that the financial health divide between the North and South has deepened significantly this year, highlighting the economic disparity between UK regions.
 
According to the index, financial health is now seven times higher in the South-East than the North-East – a significantly wider gap than last year, when the South East’s financial health score was four times higher than that of the North-East. 

The South-East has the highest level of financial health in the UK while the North-East is the worst performing region, the wealth manager said in a statement. 

The results underline the impact that the last year of high inflation and rising interest rates has had on wealth and wellbeing; worse off regions in the North of England have regressed while better off regions in the South have seen an improvement in their scores, the firm continued.

As the UK wealth divide deepens, it is likely to affect wealth managers' regional strategies and where they set up their offices. In recent years, firms have made a point of building a regioinal footprint to break out beyond the usual London/Southeast hunting ground for high net worth clients, as in the case of groups such as UBS, Julius Baer and Coutts, for example (see an article here).

The SJP UK Financial Health Index, developed in conjunction with the Centre for Economics and Business Research, analyses how wealth is distributed across the nation and where financial health is strongest, comparing results with previous years. The index is broken down into three distinct pillars: Wealth, Wealth Drivers, and Perceived Financial Wellbeing, with each pillar consisting of several indicators which measure a certain element of an individual’s financial position.

Alexandra Loydon, director of partner engagement and consultancy at St. James’s Place, said: “Clearly the financial environment in the last year or so has impacted some more than others, and it’s likely that this will only be exacerbated in the near future, as the effects of double-digit inflation, high interest rates and turbulent markets continue to bite over the next few months.”

Regional changes – wealth and wealth drivers
Despite the economic climate, most regions saw year-on-year increases in the overall wealth and wealth drivers' pillars, the firm said. The East of England, West Midlands and the South-East recorded the biggest rises in overall wealth. The East of England, which ranked third for overall wealth, can attribute this to a growth in mean household property wealth. It has increased significantly since last year, as the housing market enjoyed strong house price growth for most of 2021.

Only three regions – the South-West, Northern Ireland and the North-East – saw a decline in their overall wealth compared with last year, with the South-West seeing the largest fall, mostly due to a marked decline in their mean household pension wealth score, the firm said.

London tops the wealth driver ranking, the wealth manager continued, namely due to the capital’s performance in the median gross annual earnings for full-time employees, average investment income and annual house price growth indicators. 

The West Midlands, the South-West and the East-Midlands saw the largest gains year-on-year. While the South-East was the only region alongside the North-East to perform worse in this category than last year, due to drops in the share of workers on temporary contracts and average investment income, it still ranked second overall.

Majority of UK does not feel financially healthy
Although overall wealth has increased across many regions, the majority of regions saw a deterioration of their perceived wellbeing, as financial pressures rose in the last year. While Scotland topped this ranking in the last index, this time it has seen a noticeable fall with a 61 per cent drop compared with last year, and is now third at the bottom behind Yorkshire and the Humber and the North-East, the firm said. This fall is mostly due to a drop in how people feel their financial constraints impact their quality of life. 

The North-East’s bottom ranking – a 51 per cent decline in performance in this pillar – is largely down to the region’s ability to handle an unexpected expense, the wealth manager continued.

Despite strong performances in the wealth and wealth drivers' pillars, the South-East only ranked sixth out of the 12 regions when it comes to perceived wellbeing, mostly due to the region’s relatively poor ability to handle an unexpected expense and constraints impacting the quality of life indicators, the firm said.

A third of the UK feels financially vulnerable
SJP’s Index also found that as many as a third of UK adults currently do not feel financially resilient, up from 29 per cent in the last index, and believe they would need an increase in wealth to make them feel financially resilient.

Furthermore, three in five do not feel financially comfortable, an increase of eight percentage points from 51 per cent last year, while 81 per cent do not consider themselves wealthy, the firm said.

Cost of living is main barrier to wealth growth
Almost half of the public said the cost of living is their main barrier to wealth growth, rising to 55 per cent among those with a household income below £10,000 ($12,000), compared with 36 per cent of those with income above £80,000. Inflation was the next most frequently cited barrier to wealth growth, followed by the impact of low interest rates.
 
Looking at the key reasons behind wealth growth, just under a third reported rising house prices as the most prominent driver, followed by 27 per cent who said pay rises. A fifth said lifestyle changes enabling higher savings had driven their wealth growth, although this figure has dropped sharply from 30 per cent who said the same last year, reflecting the pressures on disposable income that people have faced in the last year, the firm said.
 
Financial planning less of a priority
SJP’s research also found that only a third have a financial plan for the future – dropping from 38 per cent in 2021. Notably the number with a financial plan in London fell by two-fifths while in the East of England 29 per cent have a plan, compared with 42 per cent previously. However, 40 per cent of Scottish adults have a financial plan, up from 35 per cent, the index shows.
 
Loydon said: “During difficult periods, having a plan to take control of your financial situation can be really beneficial both for the short and long term.” 

“We have for many years been running a programme through our partnership delivering financial education in schools and we have recently partnered with Young Enterprise to support the accreditation of schools looking to become Centres of Excellence for financial education,” Loydon concluded.