Consumers preparing to rein in expenditure
Consumers are bracing themselves for a freeze in household expenditure in the coming months, as job uncertainty and stalling incomes continue to hit home and affect sentiment.
The latest Markit UK Household Finance Index shows a rise to 40.2 in September, but this remains below the index's neutral point of 50 and actually represents a worsening of consumer finances.
Markit said key drivers for the deterioration were job insecurity for public sector workers ahead of next month's Comprehensive Spending Review, a desire to pay down debt in uncertain times, static income levels and rising food prices, and lower house prices for a third month in a row (important to consumers' perceived wealth and sentiment).
UK households remained pessimistic about the outlook for their finances in the next year, with 41% expecting things to get worse and only 23% believing they will improve.
Tim Moore, economist at Markit, said: "September's survey adds to a growing weight of evidence that UK households are braced for a renewed squeeze on their finances in the months ahead.
"Concerns over pay and job insecurity remain at the forefront of people's minds, while stubbornly high inflation and an impending VAT rise are becoming increasingly difficult to ignore."
Last week the CBI warned that consumers were likely to rein back spending sharply next year after a final splurge ahead of January's VAT rise.
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By Chris Druce
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