UK households downbeat over financial outlook as rising prices take toll

PA

Households' financial expectations for the year ahead took a turn for the worse in April as the pressure from rising prices picked up.

For the first time in three months, UK households were downbeat overall about their financial wellbeing over the next 12 months, the Markit Household Finance Index found.

Readings of 50 in the index mean people's situations have not changed, while ones above this level indicate an improvement, and readings below 50 show people's situations are getting worse.

The reading for households' expected financial wellbeing over the next 12 months stood at 49.6 in April, down from 51.4 in March. Private sector workers remained slightly more optimistic, while public sectors on average expect to be worse off in 12 months' time, the index found.

But when looking at people's current financial situations, the survey indicated that the squeeze on households had softened slightly in April, with a reading of 45.3. While this is still a negative reading, it is a small improvement compared with March, when the reading was 44.8.

By region, only households in the East Midlands reported a better financial situation compared with March. The strongest downturn was in Wales, followed by the North West and Yorkshire and the Humber.

The survey found people working in the media, culture and entertainment sectors are the most upbeat about their finances, followed by manufacturing and retail staff.

For the first time in five months, perceptions worsened for people working in finance and business services.

Markit's index measuring households' inflation perceptions increased to a 16-month high in April, while the index for expected living costs over the year ahead also climbed to an eight-month high - indicating that people believe the pressure from rising prices is intensifying.

Most people now expect interest rates to start rising over the coming year, the index found, which would push up households' borrowing costs.

Official figures recently showed UK inflation lifted to its highest level for 15 months in March as the rising cost of clothes and air fares pushed up the cost of living. The Office for National Statistics (ONS) said Consumer Price Index (CPI) inflation hit 0.5% last month.

Philip Leake, an economist at financial information services provider Markit, said the findings paint a "mixed picture" for households.

He said: "On the one hand, the squeeze on finances softened in April. Improvements in the labour market were the main positive developments - income from employment returned to growth and workplace activity rose at a faster pace.

"In contrast, the financial outlook worsened for the first time in three months. Rising prices appeared to be a contributing factor, with current inflation perceptions mirroring recent CPI data by reaching a 16-month high."

Markit's survey involves asking 1,500 people aged 18 to 64 across Britain about their financial situation.