Household finances at low ebb, according to Markit monthly survey

The Household Finance Index (HFI) has found household finances have worsened at sharpest pace since August,

Markit found 37% of respondents saw their financial situation deteriorate since October - image: HW
Markit found 37% of respondents saw their financial situation deteriorate since October - image: HW

The Markit Household Finance Index survey found a widening disparity between highest and lowest income groups, which saw the sharpest deterioration in finances for three months in November, the widest ever gap between HFI index for top and bottom income groups and pessimism about year-ahead finances (48 per cent) is double that of positive responses (24per cent).

Savings and willingness-to-spend have declined, with youngest (18-24 years) generally the hardest hit.

The Markit Household Finance Index survey, which is intended to anticipate changing consumer behaviour accurately marked current finances at 34.6 in November, down from 35.0 in October - the sharpest deterioration in current financial perceptions for three months. Any figure below 50.0 indicates worsening household finances. The latest reading was much weaker than the survey average (37.6), signalling that household finances continued to deteriorate at a far steeper pace than the overall trends seen in 2009 and 2010.

Around 37 per cent of all survey respondents noted a deterioration in their financial situation since October, while only six per cent saw an improvement.

The headline HFI figure masked a considerable divergence across income groups. In the lowest income group (less than £15,000 per year), 51 per cent of respondents reported worsening finances against just two per cent that pointed to an improvement. At 25.5 in November, the index was well below the national average and the weakest since March 2009.

The second-lowest income group also recorded the steepest deterioration in their financial situation for just over two-and-a-half years (45 per cent saw a deterioration, five per cent an improvement). By contrast, at 47.3 in November, the index for the highest income group signalled the slowest worsening of household finances for 11 months (19 per cent noted a deterioration, 14 per cent an improvement).

Meanwhile, public sector workers reported a steeper deterioration in their household finances than in October. At 32.9, the index was much lower than the equivalent figure for private sector employees (38.6). In contrast to the overall trend in November, the latest deterioration in private sector household finances was the slowest since April.

November data indicated that households remain downbeat about the outlook for their finances in 12 months’ time. Twice as many households (48 per cent) expect their financial situation to worsen in the year ahead as those that forecast an improvement (24 per cent). However, at 37.9, the resulting index rebounded from a six-month low of 34.5 in October.

People employed in the public sector are much more pessimistic about their future finances than those in the private sector.

Although all income groups are less pessimistic than in October, a wide divergence in sentiment persisted as the highest earners reported a much less downbeat outlook than the lowest income category.

Spending, incomes and job security

Household spending continued to rise at a modest pace in November. Around 27 per cent of respondents noted an increase, compared to 23 per cent that saw a fall.

However, the index measuring households’ willingness to make major purchases remained close to the record low seen after January’s VAT rise.

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