Households get more confident as squeeze lifts

Ben Southwood
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THE TIGHT squeeze on household finances showed signs of loosening in October, data showed today, just as consumer sentiment improved to its best level in a year, according to separate figures.

Household budgets were deteriorating at their slowest pace for two years in October, Markit said, as the UK climbs out of the second dip of the recession. The headline household finance index climbed from 38.4 in September to 39.0 in October, where a score of 50 indicates no change in finances.

But Markit economist Tim Moore focused on the drubbing dealt to expectations, with the outlook for the year ahead slumping from 44.3 to 37.4.

“Households indicated sharp downward revisions to their financial outlook in October,” Moore said, “bringing a rather abrupt end to the improvements seen throughout the summer.

“The steep reversal in future sentiment is a clear signal that households are likely to keep a tight rein on spending in the months ahead,” Moore warned.

But Deloitte’s consumer tracker gave support to a more optimistic reading of the household finance data. UK consumer sentiment bounced to its strongest level since the same quarter a year previously, Deloitte said, with respondents expressing less pessimism about their incomes, job opportunities and debt.

“The consumer tracker points to a reduction in the stress on the household, with consumers more positive about their income, employment and working hard to balance the books by reducing their levels of debt,” said Deloitte chief economist Ian Stewart.

But the figures, though improved, were still on balance negative. Thirty-three percentage points more said confidence in their household disposable income had not improved in the third quarter than said it had. And 10 percentage points more said their job opportunities had not improved, compared to those who said they had.