Families cut back spending

THE health of household finances and consumer confidence are in sharp decline, according to a survey released by research firm Markit today.

The index measuring expectations for future household finances dropped from 40.7 to 37.7, with 50 being the break-even point that indicates no change in sentiment.

The sharpest drop was among those working in the public sector: sentiment fell ten points from 39.9 to 38.9. Overall, 27 per cent of households said that their finances had deteriorated since last month.

Household spending also fell at the fastest rate since January. While it had increased for the past two months, October has seen families cut back on their outflows: the index recorded 48.9 versus 51.5 – a mild increase – in September.

Markit also reported that households have both seen their debt rise for the first time in nine months and their earnings drop.

The survey comes just after the release of disappointing retail sales figures for September showing a drop of 0.2 per cent, a second month’s successive fall.

In addition to suffering high inflation – the retail price index now stands at 4.6 per cent – consumers’ confidence has been knocked by bad news in the housing market and by the prospect of tax rises. The VAT rate is soon to go up from 17.5 per cent to 20 per cent.

Households recorded the steepest fall in the value of their property for 17 months, with the Markit survey’s house price index plunging to 36.9 from 43.2 last month.

The decline in household spending and property values compounds concerns about a slowdown in the nation’s recovery.

Markit’s Tim Moore said: “The wider economy may be set for a soft patch before we see the gains from deficit reduction and the benefits of a leaner government.”

Economists warned a cutback in consumer spending will dampen economic growth.

“Consumer spending is 65 per cent of the economy,” said Howard Archer at IHS Global Insight.