UK Families' Finances Worsen Faster Than in Recession

UK households saw their finances deteriorate faster than during the height of the recession in 2009 in August, a survey showed on Monday, in a sign that the economic recovery remains fragile in the country as prices rise and incomes fall.

Empty Wallet
Empty Wallet

The Markit Household Finance Index, which aims to anticipate changing consumer behavior, found that almost 40 percent of households saw their finances deteriorate since the previous month, compared to just under 6 percent that recorded an improvement.

“Recent events have made a week seem a long time in economics and August’s survey is the first sign that the slew of downbeat headlines has knocked consumer sentiment,” Tim Moore, senior economist at Markit said in a statement.

“With a global economic slowdownand an escalating euro zone debt crisis lapping on the shores, it was unsurprising to see households’ appetite for major purchases reverting back to its lowest since the start of the year,” he said.

The worsening of household finances in August coincided with the fastest fall in cash available to spend since on record and a drop in income from employment for the eleventh month running, Markit said.

This in turn contributed to the sharpest reduction in savings since March 2009, it added.

“This squeeze on consumer purchasing power is unlikely to abate in the near-term, with the Bank of England expecting inflation to reach 5 percent later this year as higher utility and oil-related prices filter through to household budgets,“ Moore said.

The Bank of England held interest rates at their historic low of 0.5 percent earlier in August after weaker-than-expacted economic growth figures for the second quarter of 2011.