Households cut spending amid tightest squeeze in three years - poll

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British households are spending less money on holidays, cars and white goods after suffering the tightest squeeze on their finances for three years, a survey has revealed.

The IHS Markit Household Finance Index (HFI) hit 41.8 in July, down from 43.7 in June, with a reading above 50 indicating growth.

Higher inflation and sluggish wage growth weighed on spending power, with the amount spent on big-ticket items - such as holidays and cars - falling at the fastest rate since December 2013.

Tim Moore, IHS Markit's senior economist, said the "recent moderation" in inflationary pressures had yet to feed through to households. 

He said: "The latest downturn in financial wellbeing was the greatest recorded for three years, reflecting reduced cash available to spend and lacklustre pay growth.

"There are signs that squeezed household budgets and worries about earnings have started to spill over to consumer spending patterns.

"Consumer aversion to spending on big-ticket items (such as cars, holidays and large appliances), appears to have been magnified by upward pressures on household debt, as well as stretched cash available to spend.

"The latest survey pointed to a renewed rise in household debt, alongside another increase in demand for unsecured borrowing."

The UK economy's lacklustre start to the year is expected to continue when official figures for the second quarter are released on Wednesday. 

Economists are expecting gross domestic product (GDP) to expand by 0.3% between April and June, as flagging industrial production and construction output drags on growth.

It would mark a slight improvement on first quarter GDP of 0.2% when the services sector stuttered as inflation dealt a blow to consumer spending.