Squeeze on household finances eases

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LONDON (ShareCast) - The squeeze on household finances is at its lowest level for nearly two years, according to new figures.

But Markit's Household Finance Index for October also showed a steep downturn in consumers' outlook for the next year.

Around four times as many survey respondents (29%) reported that their household finances worsened in October as those that indicated an improvement (7%).

The balance of 22% still placed the index at its highest level since December 2010, signalling a much weaker squeeze on households' financial well-being than has been the case for almost two years.

Among the main positives from the October survey, income from employment was near to stabilising as it deteriorated at the slowest rate for 25 months, helped by a rise in the national minimum wage.

This meant that cash available to spend declined at the slowest rate for 22 months in October, while household debt was reduced for only the second time in the past 18 months.

Meanwhile, consumers' appetite to make major purchases rose to the highest level since December 2010.

On the downside, the index measuring households' financial outlook for the year ahead plunged to a 2012-low of 37.4 in October from 44.3 in September (50 denotes neither a deterioration nor an improvement).

Markit reported that in October a balance of 25% of respondents expected their finances to deteriorate over the next 12 months.

this compared with September, when the balance expecting deterioration had been 11%.

October's deterioration was largely due to greater concerns around inflation.

"This highly likely reflected the recent move back up in petrol prices which are highly visible and may also have been influenced by announcements of utility price increases in October and November (Xetra: A0Z24E - news) ," said Dr Howard Archer, Chief UK Economist at IHS (NYSE: IHS - news) .

He also blamed warnings that food prices could increase over the coming months as a consequence of high grain prices resulting from poor harvests.