Inflation’s long squeeze on UK finances eases

Tim Wallace
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HOUSEHOLDS’ inflation expectations fell to a six-month low in August as the squeeze on finances eased to its lowest level in almost two years, according to a report out today from Markit.

The decline in finances almost came to a halt in the private sector, recording a score of 47.2. On Markit’s index a reading of 50 indicates no change in finances.

However the picture remains gloomy in the public sector, according to Markit, with a score of 38.2.

“The breadth of improvement spanning debt trends, inflation expectations, incomes and job security points to a more fundamental easing of the financial downturn,” said Tim Moore, senior economist at Markit.

However, a separate ‘spending power’ report from Lloyds’ showed that consumers had no more extra money to spend on discretionary items this July than in the same month of 2011.

Income growth stood at 2.4 per cent on the year, according to the study, and 0.3 per cent after taking inflation into account.

But as spending on essential items rose 3.2 per cent, driven by an 11.1 per cent rise in gas and electricity spending, 7.4 per cent in water, and food 5.8, purchasing power remained stagnant.

Planned spending in six months’ time also continues to be in negative territory with the balance of opinion – the difference between those saying they will spend more minus those saying they will spend less – minus six per cent for July, implying a likely reduction in overall spending in the lead up to Christmas.

“Annual growth in essential spending is not putting downward pressure on budgets in the same way as it was earlier in the year, but with income growth still weak, we are yet to see any noticeable improvement in the amount of money people have left over for discretionary purchases,” said Jatin Patel, director of current accounts for Lloyds TSB.