Sharp deterioration in outlook for household finances

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The outlook for household finances has slumped to a six-month low, with job security and incomes declining again in October while bills keep going up. Families' debt levels have climbed for seven months running, and people's appetite for major purchases such as a car or furniture has weakened markedly.

More than half of all those polled by financial information firm Markit expect their finances to worsen, while just over a fifth anticipate an improvement in the 12 months ahead.
These are the main findings of Markit's latest household finance index. It points to a steep reversal in households' fortunes in 12 months' time. After climbing steadily over the summer, the index measuring confidence about future household finances fell sharply to its lowest level for six months in October.

Public sector workers in particular have been hit Sharp deterioration in outlook for household finances
  • Household finances outlook hits 6-month low
  • Job security and incomes decline again in October
  • Debt levels rise for seventh month in a row
  • Appetite for major purchases weakens markedly

The prospects for household finances have hit a six-month low, with job security and incomes declining again in October. Families' debt levels have risen for seven months running, and people's appetite for major purchases such as a car or furniture has weakened markedly.

These are the main findings of Markit's latest household finance index. It points to a steep reversal in households' outlook for their finances in 12 months' time. After climbing steadily over the summer, the index measuring sentiment about future househofor six months. More than half of all those polled expect their finances to worsen, while just over a fifth anticipate an improvement in the year ahead.

Public sector workers have been hit hardest by the government's austerity and suffered the sharpest reduction in their pay since March. Household savings overall remained under pressure in October, and fell at a sharper pace than in September. Public sector workers saw the fastest fall in their savings since the survey began in early 2009.

Higher debt levels were recorded for the seventh consecutive month in October, which is the longest continuous period in the survey's history. Only those in the highest income group (over £58,000 per year) saw an overall drop in debt.

Tim Moore, Senior Economist at Markit said: "Household finances were once again gripped in a vice of subdued real incomes and heightened job insecurity in October. Weak labour market conditions, combined with elevated inflationary pressures, have made rising debt and falling willingness-to-spend recurring themes this year. October was no exception, with these unwelcome trends especially prevalent among public sector employees and the lowest income groups.

"Public sector workers also noted the bleakest outlook for their household finances since the survey began in early 2009, with almost two-thirds expecting a deterioration over the year ahead. However, concerns about a stalling recovery in the wider economy meant that heightened pessimism was not just confined to public sector workers. The overall balance of households expecting their finances to deteriorate in the year ahead was the largest for six months, which more than reversed the modest improvements seen in the summer.

"Households also expect a continued erosion of their real incomes next year, despite inflation expectations falling back slightly in October. Around 88% of households anticipate a rise in their cost of living next year, while only 31% of respondents forecast increased income over this period."by the government's austerity and suffered the sharpest reduction in their pay since March. Household savings remained under pressure in October, and fell at a sharper pace than in September. Public sector workers saw the fastest fall in their savings since the survey began in early 2009.

Higher debt levels were recorded for the seventh consecutive month in October, which is the longest continuous period in the survey's history. Only those in the highest income group (over £58,000 per year) saw an overall drop in debt.

Tim Moore, Senior Economist at Markit said: "Household finances were once again gripped in a vice of subdued real incomes and heightened job insecurity in October. Weak labour market conditions, combined with elevated inflationary pressures, have made rising debt and falling willingness-to-spend recurring themes this year. October was no exception, with these unwelcome trends especially prevalent among public sector employees and the lowest income groups.

"Public sector workers also noted the bleakest outlook for their household finances since the survey began in early 2009, with almost two-thirds expecting a deterioration over the year ahead. However, concerns about a stalling recovery in the wider economy meant that heightened pessimism was not just confined to public sector workers. The overall balance of households expecting their finances to deteriorate in the year ahead was the largest for six months, which more than reversed the modest improvements seen in the summer.

"Households also expect a continued erosion of their real incomes next year, despite inflation expectations falling back slightly in October. Around 88% of households anticipate a rise in their cost of living next year, while only 31% of respondents forecast increased income over this period."
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