Markit: UK household finance index at best level for 13 months
The latest Markit Household Finance Index for January shows a surprise improvement in UK household’s view of their economic situation and outlook for their finances.
The index rose from 34.3 in December to 36.4 in January, its highest level for 13 months, though still well below 50, the level that represents a “neutral” view of household finances.
33 per cent of households reported that their finances worsened over the past month, whilst just six per cent of households reported an improvement.
The lowest income strata of UK households, those who earn or receive less than £15,000, reported the tightest squeeze on household finances but the rate of deterioration was slower than seen in December and this was the case for all income groups during January.
The most positive influence on the improvement in the index came from perceptions that inflation is falling (a perception backed by evidence as the ONS reported a sharp fall in the consumer prices index from 4.8 per cent in November to 4.2 per cent in December). Current inflation perceptions and those for the year ahead were both the lowest for 15 months.
However, the index shows that income from employment fell at the fastest pace in the survey’s three-year index. Savings rates declined at the slowest rate for six months.
Looking ahead, the index reveals UK households are more optimistic in January for what their financial situation will be like in 12 months time. 42 per cent think their finances will deteriorate, whilst 26 per cent expect an improvement. The index rose from 37.1 in December to 42 points, the highest level for four months.
Across the UK, people in the south-west were the most optimistic about their future finances, whilst households in Wales were the least confident.
Households reported a further fall in earnings from employment in January. The index fell from 46.9 in December to 46.1 in January. The decline in confidence was similar amongst both private and public sector workers.
Household spending on major purchases was still weak compared to how it has been for much of the past three years but improved from 28.3 in December to 32.9, the highest reading since June 2011.
Tim Moore, Senior Economist at Markit said: “The year has started with a few chinks of light for household finances, helped in no small part by a drop in inflationary pressures on the high street and recent news of energy price reductions. This is an encouraging development given the pervading gloom towards the end of 2011.
“Those with the lowest incomes saw the biggest turnaround in their current finances, reflecting the recent alleviation of pressure on everyday costs of living. They are still the most downbeat about the next 12 months, but the degree of negative sentiment was the lowest for two years.”
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