Households pessimistic about their finances

According to a new report released today, households are at their most pessimistic regarding their finances for a period of nearly two years with inflation being a major concern. Also, steep increases in the cost of living have led to a sharp drop in families making major purchases.

Disposable incomes are suffering as income levels continue to fall and the amount of money that people have to spend on leisure activities such as holidays and eating out is dramatically dropping. Most households expect their finances to continue in a steady decline through to next year.

A senior economist from the research group Markit said that household finances are deteriorating even faster than initial predictions suggested at the end of last year and the recent rise in VAT, as well as higher inflation and reduced incomes have all added to the problem, making it difficult for most households to keep their heads above water.

More than a third of households revealed that their finances have deteriorated since the beginning of the year in comparison to the 6 per cent that said things had improved. Inflation has risen to 3.7 per cent, putting more pressure on most households.

The forecast looks bleak for the price of goods and services with almost nine out of 10 households expecting that they will rise while only two per cent expect a decline. The Bank of England has felt pressure to help fight the increasing inflation by raising interest rates.

Mortgage borrowers expect particularly gloomy prospects with 48 per cent of them predicting that their finances will go through tough times over the coming year compared with December’s 39 per cent.