'Gloom lifting' for family budgets

The pressure on household finances has eased to its weakest levels in three years, in a sign that the "gloom is lifting", a report has found.

Hopes that families' budgets may be entering "a period of relative calm", came from a renewed increase in people's take-home pay as well as a perception that the rise in living costs is easing, according to financial information company Markit, which compiled the research.

Some 9% of people surveyed said their finances improved in May, while almost 28% said that they worsened. The overall reading of the latest monthly survey into people's finances was 40.4, marking the slowest deterioration in household finances since May 2010.

A reading above 50 signals that people's overall finances are getting better and one below 50 shows a decline. While 40.4 is still a negative reading, it is a sharp improvement on a reading of 37.7 in April, signalling that the squeeze on finances eased "substantially" over the month, Markit said.

Households were also the least downbeat about their financial outlook for the next 12 months than they had been since September last year. The study recorded the biggest improvement to levels of income from employment in three years, which was mainly driven by people working in finance and business services and the IT and telecoms sector. Manufacturing employees also saw relatively strong levels of pay growth.

Meanwhile, households reported that the squeeze on their cash availability eased significantly, with the slowest decline in spending power seen in around two and-a-half years. Markit said its research recorded the most marked decrease in inflation perceptions since May 2009.

All income groups saw the pressure on their budgets ease over the month, but people with incomes of between £15,000-£23,000 saw the biggest turnaround, Markit said.

London and Yorkshire and the Humber were the least downbeat regions, while those living in the East Midlands were the most pessimistic.

Tim Moore, senior economist at Markit and author of the report, said: "May's survey is a clear indication that the gloom is lifting over household finances."

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