Household finances hit rock bottom but ‘douple dip’ threat fades

22nd August 2011

A household finance index from financial information firm Markit has fallen for the third month; meaning that spending is at its lowest level since the survey was first compiled in February 2009.

The Guardian reports amost 40% of households, whose spending accounts for two-thirds of the economy, saw their finances worsen between July and August, compared with fewer than 6% who reported an improvement.

Tim Moore, a senior economist at Markit noted that in August there was a steep drop in take-home pay and this reduced income was squeezed further by rising inflation.

Exports, which could make up the slack for any household spending squeeze were also weak; fewer than 7% of UK exports are going to Brazil, Russia, India and China – the so-called Bric economies. It argues that Britain is missing out on trading with these emerging markets and is being left behind by Germany and the US.

However despite these worryng indicators economists believe the prospect of a double-dip recession has receded.

On FT.com (paywall) Michael Saunders, economist at Citigroup is quoted saying: "Our base is not a recession, but an extended period of sluggish growth and rising unemployment."

David Jacob, chief investment officer at Henderson Global Investors said investors needed to keep a long term view.

He said consumer spending was one of four factors driving economic growth and it was likely that consumer would remain squeezed for some time.

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