'Abrupt end' to improving outlook

Empty pocketThe squeeze on families' budgets was at its weakest in nearly two years in October, but fears grew sharply that their finances will take a turn for the worse, a study has found.

Households saw the slowest deterioration in their finances in October since December 2010, helped by a near-stabilisation of employment income and the most marked drop in debt levels for just over two years, the Markit household finance index found.
However, an improving outlook from households for the months ahead which had been seen previously over the summer came to an "abrupt end", the study said.

More than twice as many households expect their financial wellbeing to worsen over the next year compared with those who expect an improvement, at 45% compared with 20%.

The study said worries of higher living costs were weighing down households, with expectations for living costs in the next year picking up compared with the previous month.

Rising concerns about the future financial outlook were seen across all income groups, age ranges and job sectors, with people living in the East of England, Scotland and the North East respectively found to be the most pessimistic.

Lower levels of job security were recorded across all employment sectors monitored by the survey, with people working in the finance and business sectors indicating the sharpest deterioration. However, household debt was reduced only for the second time in the past year-and-a-half, with the improvement in the overall trend driven by mortgage holders.

The findings come after it was revealed last week that inflation dropped to its lowest level for nearly three years in September, but analysts warned that energy bill hikes, combined with rising food and petrol costs, will push living costs back up again.

Overall, Markit's index stood at 39.0, up from 38.4 in September, although the figure still falls below the 50.0 mark. Readings above 50.0 signal an improvement and those below it a deterioration.

Tim Moore, senior economist at Markit and author of the report, said: "While pressures on current finances were reported to have moderated again, helped by stabilising incomes and lower debt, the steep reversal in future sentiment is a clear signal that households are likely to keep a tight rein on spending in the months ahead."
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