Household finances worsen

Nia Williams

September 27, 2010

The latest Markit survey of 1,500 households showed that approximately 27% of respondents saw their household finances worsen in September, compared to just over 7% that recorded an improvement.

As a result, the headline Markit Household Finance Index (HFI) registered 40.2 in September, up from 37.9 in August. The index rose for the second successive month but remained well below the neutral level of 50.0, to thereby indicate a further marked deterioration in UK household finances.

However, a divergence between public and private sector employees was evident, with the former reporting the sharper deterioration in their household finances.

The divergence can be largely attributed to a backdrop of economic uncertainty and ongoing concerns about job security in the public sector.

UK households remained pessimistic about the outlook for their finances in the next 12 months, according to Markit. Around 41% of respondents expect a deterioration, against 23% that forecast an improvement. At 40.7 in September, the resulting index posted well below the neutral 50.0 level.

However, the overall degree of pessimism was the lowest since April. Continuing the trend seen over the past five months, private sector employees were much less downbeat about the outlook for their finances than those working in the public sector.

September data also indicated that people in the oldest age category (55-64 years) were particularly pessimistic about the outlook for their finances. Of the five age groups, only those in the 25-34 years category were optimistic about their future finances.

House price perceptions remained negative in September, with almost 22% of respondents suggesting a drop in the value of their residence, compared to 8% that reported a rise.

At 43.2 in September, the index measuring house price perceptions was broadly unchanged from 43.3 in August, but this was nonetheless the lowest reading for 14 months. Meanwhile, house price expectations remained subdued compared to those seen in the first half of the year. Around 31% of respondents expect a rise in the value of their residence over the next 12 months, compared to 25% that anticipate a fall.

Commenting, Tim Moore, economist at Markit said: “September’s survey adds to a growing weight of evidence that UK households are braced for a renewed squeeze on their finances in the months ahead. Concerns over pay and job security remain at the forefront of people’s minds, while stubbornly high inflation and an impending VAT rise are becoming increasingly difficult to ignore.

“Those working in the public sector reported the greatest degree of pessimism, perhaps because of a sense of unease ahead of next month’s government spending review. Households have responded to the uncertain outlook by paying down debt, reining in their appetite for unsecured credit and delaying major purchases. The HFI survey shines a light on the underlying causes of August’s unexpected drop in UK retail sales and, moreover, strikes a warning that the stage is set for further cut backs in high street spending over the months ahead.”

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