marylsommers: Outlook for family finances bleakest for two years, survey shows

Monday, March 21, 2011

Outlook for family finances bleakest for two years, survey shows

Markit household finance index finds third of families have seen their income and spending worsen since February

Household finances have plunged back to lows last seen in the recession while workers are at their most pessimistic for two years in a bleak assessment of household finances ahead of Wednesday's budget.

A combination of falling incomes and rising prices have squeezed household disposable incomes, according to the economic consultancy Markit. Amid concerns over the slowing economy and job losses in the public sector, households reported the steepest monthly deterioration in their finances since March 2009.

Almost 35% of households reported that their finances have worsened since February, while just 5% saw an improvement.

At 35.2 in March, down from 35.6 in February, the headline Markit household finance index is likely to be seen as a strong indicator that families are finding life tough financially and unlikely to venture back to the high street in the next few months.

The study follows a report by building society Nationwide showing that its monthly confidence index fell back 10 points in February to its lowest level since the survey began in May 2004.

Both indexes could add to pressure on the Bank of England to keep interest rates low. The City regulator, the Financial Services Authority, and City economists have warned that many people with tracker mortgages are vulnerable to a rate rise. The FSA devoted an entire chapter in last week's Prudential Risk Outlook to the low interest rates that have prevailed during the financial crisis and noted that homeowners were taking on as much debt as they were before the crisis.

The poor state of families' day-to-day finances will add to the sense of unease among policymakers that many people are in financial difficulty.

Markit said public sector workers continued to be more downbeat than those with jobs in the private sector. People working in education, health and social services reported the most pessimistic assessment of their future finances since the survey began. Worries about job security intensified in March with nearly five times as many respondents reporting lower job security as those who reported an improvement.

Tim Moore, senior economist at Markit, said: "The March HFI survey presents a bleak assessment of household finances ahead of the UK budget. Job insecurity and worries about higher everyday living costs once again dominate the outlook for household finances, which fell to its lowest since the survey began in February 2009."

He said the budget on Wednesday may confirm the worst fears of public sector workers that thousands of jobs would be lost after April.

More than 100,000 public sector jobs have already disappeared. The GMB union said its records showed that another 226,000 are scheduled for the chop. Moore said: "With the forthcoming budget likely to reaffirm the need to continue along the path of fiscal consolidation, public sector workers are especially pessimistic about their job security.

"Their assessment of the outlook for their finances is even weaker than that seen on the eve of last year's emergency budget, suggesting that other concerns such as proposed pension reform and higher inflation have further dented confidence."

Households continue to report higher living costs, with 82% of respondents in March saying prices of goods and services rose with only 2% reporting a fall.

"Higher living costs have resulted in a record drop in cash available to spend and despite pockets of growth in manufacturing and business services, weak economic conditions mean that incomes continue to fall behind inflation," Moore said.