Squeeze on household budgets begins to ease

Consumers in the UK reported the smallest deterioration in their finances in almost two years in August, prompting hopes that Britain is on the road to economic recovery.

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The decline in finance deterioration has been put down to fact that debt levels have stopped climbing and that the fear of redundancy isn’t as pronounced as before.

Financial information services company Markit revealed that its headline Household Finance Index rose to 38.9 from 37.5 in July; the highest figure since December 2010.

Just under 30% of those surveyed said that their financial situation had got worse this month, while less than 8% reported an improvement in their finances.

“While the Olympics perhaps helped give a warmer glow to household morale, the breadth of improvement spanning debt trends, inflation expectations, incomes and job security points to a more fundamental easing of the financial downturn,” said Tim Moore, senior economist at Markit.

In addition, figures revealed that fewer consumers reported concerns about their job security. However, this figure still outweighed the number of consumers who felt confident about their jobs.

The index measuring inflation expectations for the upcoming year was also at the lowest level since February. However, this was compiled before official data revealed that consumer price inflation rose from 2.4% to 2.6% over the month to July.

Recent research from MGM Advantage highlighted that the rise in inflation will mean that households will need £897 more a year to maintain the same standard of living they enjoyed 12 months ago.

The outlook for consumers’ finances still remains fragile, as household spending rose at its slowest rate for the five months in August. Disposable income and savings levels also fell at a faster rate compared to July.

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