Household finances squeezed further

A new study has revealed 40% of households saw a deterioration in finances last month.

The Markit household finance index also found consumers suffered the fastest fall in their available cash since the monthly survey began in February 2009. Income from employment fell for the 11th month running – with August witnessing the steepest decline in take-home pay for nine months.

Meanwhile, the impact of rising prices has also hit consumer finances.

Markit said these factors contributed to the sharpest reduction in savings since March 2009. Debt levels increased for the fifth consecutive month, and at the fastest pace since November 2010.

Tim Moore, senior economist at Markit, said: “With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year. It is likely that the UK economy will be increasingly dependent on external demand.”

He added the pressure on purchasing power was unlikely to ease in the short term, with the Bank of England expecting inflation to reach 5% later this year, as higher prices continue to filter through to household budgets.

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