Figures for March show the harshest deterioration in household finances for two years – highlighting
the fragile nature of the current economic recovery just days before the government’s annual
Budget.
The household finance index, by research company Markit, allocates a numerical value to represent
the change in the average household’s financial situation compared to the previous month. The
index fell from 35.6 in February, to 35.2 in March – the lowest figure since March 2009. The
measure of expectations for the future state of households’ finances also fell, from 34.7 to 34.2.
Markit’s senior economist Tim Moore said: “”The growing headwinds facing households are likely to
continue to hold back consumer spending in the months ahead. Higher living costs have resulted in
a survey-record drop in cash available to spend.”
“Despite pockets of growth in manufacturing and business services, weak economic conditions mean
that incomes continue to fall behind inflation,” he added.
The results of the survey serve to underline worries about the country’s recovery, after the UK
economy saw an unexpected contraction in the last three months 2010.
The Bank of England has held its base interest rate at an all-time low of 0.5 per cent for the past two
years. It has come under increasing pressure from some quarters in recent months to increase the
rate in an effort to tackle inflation, which currently stands at double the Bank’s stated target of 2 per
cent.
So far, the Monetary Policy Committee has stuck to its guns, arguing that overall economic recovery
is more important than the inflationary figure, which it says has been magnified by the VAT increase
in January.
