UK households’ view of their finances still negative but getting less pessimistic

16th December 2013

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Households in the United Kingdom have seen a further deterioration in their financial position though they are less negative about their future.

The Markit Household Finance Index (HFI) – which measures households’ overall perceptions of financial wellbeing – picked up to 39.7 during December from a seven-month low of 38.8 in November.

Yet the latest reading was still well below the neutral 50.0 value and is still the second-lowest since April.

More than three times as many survey respondents (29%) reported that their financial situation worsened over the month as those that signalled an improvement (9%).

People living in the East of England (43.5) were the least downbeat about their household finances in December, while those in Yorkshire and Humber reported the sharpest squeeze (35.5).

However the outlook for the next 12 months improves. The data from December signalled that households are downbeat about the outlook for the next 12 months, but the degree of negative sentiment was the lowest for around four years.

The proportion of pessimists (35%) was higher than the percentage of households expecting an improvement in their finances (30%).

Yet at 47.8 in December, the resulting index measuring the outlook for financial wellbeing over the next 12 months picked up sharply from 41.2 in November.

People working in the private sector are (on balance) positive about the outlook for the next 12 months. At 51.2 in December, the index was much higher than the equivalent reading for public sector employees (42.6).

In terms of job security, improving economic conditions appear to have underpinned the upturn in households’ financial outlook during December. This was highlighted by the index measuring workplace activity posting 56.8 in December, up from 53.3 in November and its highest level since the series began almost five years ago.

Higher levels of workplace activity contributed to a rise in households’ income from employment during December. At 50.7, up from 49.6 in November, the index nonetheless indicated only a moderate pace of pay growth.

Meanwhile, job insecurities persisted in December, but the degree of pessimism was less marked than the average since the survey began. Households’ current inflation perceptions dipped for the first time in three months during.

Tim Moore, Senior Economist at Markit and author of the report says: “December’s survey suggests that a rising proportion of UK households are hopeful that the squeeze on their finances will begin to subside during 2014.The improving outlook indicates that strengthening domestic economic conditions have started to boost consumer sentiment. However, while job insecurities have receded this year, the latest survey highlights that income and saving trends remain very subdued, especially at the lower end of the pay spectrum.”

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