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Gloom over household finances starts to lift as pay inches up and inflation fears recede

Signs that households' gloom over their finances is lifting have arrived as a new report showed pay inching up and inflation fears receding.

While people still feel that their finances are deteriorating, according to financial information company Markit, the pressure on them has eased to the weakest level in three years.

It said there were hopes household finances were entering a period of relative calm after the rocky ride of recent years.

Family finances: Pressure has eased on households, according to a new report

The report arrives amid signs of improvement in the property market, thanks to falling mortgage rates. The latest RICS report last week showed house hunters at the highest level in three years with agents reporting a rise in potential buyers across England and Wales.

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Some 9 per cent of people surveyed by Markit said their finances improved in May, while almost 28 per cent said that they worsened. The overall reading of the latest monthly survey into people's finances was 40.4, marking the slowest deterioration in household finances since May 2010.

A reading above 50 signals that people's overall finances are getting better and one below 50 shows a decline. While 40.4 is still a negative reading, it is a sharp improvement on a reading of 37.7 in April, signalling that the squeeze on finances eased 'substantially' over the month, Markit said.

Households were also the least downbeat about their financial outlook for the next 12 months than they had been since September last year.

The study recorded the biggest improvement to levels of income from employment in three years, which was mainly driven by people working in finance and business services and the IT and telecoms sector. Manufacturing employees also saw relatively strong levels of pay growth.

Source: Markit Household Finance Index

Meanwhile, households reported that the squeeze on their cash availability eased significantly, with the slowest decline in spending power seen in around two and-a-half years. Markit said its research recorded the most marked decrease in inflation perceptions since May 2009.

All income groups saw the pressure on their budgets ease over the month, but people with incomes of between £15,000-£23,000 saw the biggest turnaround, Markit said.

London and Yorkshire and the Humber were the least downbeat regions, while those living in the East Midlands were the most pessimistic.

Tim Moore, senior economist at Markit and author of the report, said: 'May's survey is a clear indication that the gloom is lifting over household finances.

 

'Budgets were under the least pressure for three years and rising workplace activity added to hopes in some quarters that their household finances may at last enter a period of relative calm.

'A renewed rise in take-home pay and lower inflation perceptions were the main factors boosting households' financial sentiment in May. Alongside this, news that the UK economy avoided a triple-dip recession probably helped create a relief element to the rise in households' financial perceptions.'

Despite the improvements, the study also indicated that households are continuing to act cautiously, with a greater tendency towards saving their money rather than spending any spare cash. Consumers' appetite for making major purchases remained flat.

The report regularly asks 1,500 people across Britain about their finances.


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