Household finances show fastest decline this year

Despite the decline the reading is still above the average


Household finances show fastest decline this year

Household finances are deteriorating at the fastest rate seen this year as the boost from low inflation starts to "lose its intensity", figures show.

The data comes after sharp improvements earlier in the year with wages rising and a flat cost of living.

Markit's UK Household Finance Index for August fell to 43.4 from 45.1 in July. Readings above 50 signal that households' financial situations are improving and readings below that point indicate deterioration.

Despite the decline, the reading was still above the average of 39.4 since the survey began around six and a half years ago.

August's data showed a greater squeeze on household finances across most jobs sectors monitored by the survey, especially education, health and social services, and manufacturing, though there was less pressure on construction workers

The figures showed UK households were slightly downbeat about prospects for the next 12 months, although sentiment was a little better than in July.

There was a sharp contrast between optimism among private sector workers and gloom for those in the public sector. Meanwhile the mood among workers aged 18-24 fell to its lowest since November 2013.

The figures also showed a sharp rise in expectations for an interest rate hike, with 78% of households believing there will be a hike in the next 12 months, up from 62% in July.

It comes after the Bank of England recently dampened expectations of a rise this year and hinted that it was more likely to come early in 2016. A hike will add to costs for many mortgage borrowers but ease some of the pain endured by savers.

Inflation has hovered around zero since February, keeping a lid on the cost of living, thanks to the supermarket price war pushing down food and drink prices and the slump in oil prices. Figures this week showed it was 0.1% in July.

Tim Moore, senior economist at Markit, said: "The survey's gauge of UK household finances has slipped again from the six-year peaks seen earlier in 2015, suggesting that the boost to consumer sentiment from inflation has started to lose its intensity.

"Improving fundamentals and gradually rising income from employment should continue to support household finances through the remainder of this year, but the ongoing strains reported in August highlight an underlying fragility around the edges of the recovery."

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