Falling inflation boosts households’ financial confidence

| July 23, 2012 | 0 Comments
Falling inflation boosts households’ financial confidence

UK Households are feeling less pessimistic about their finances following a fall in inflation last month, according to the latest Markit Household Finance Index.

The index, which is designed to give the earliest indication of actual changes in household finances each month, has increased from 37.0 to 37.5.

Although this is still significantly below 50.0, which indicates there has been no change in household finances, it is a step in the right direction.

Seven per cent of respondents to the survey, which is based on responses from over 2,000 households, said their household finances had improved, while 32 per cent said their household finances had worsened.

Tim Moore, Senior Economist at Markit said: “Households were less pessimistic about their financial outlook in July, with reduced inflation helping ease the strain on budgets.”

People over the age of 55 tend to benefit most from a fall in inflation, as they may have paid off their mortgages and are more likely to be on a fixed income, and this age group were the most optimistic about their finances.

The Markit future finances index increased to 43.1 in July, from 42.8 in June, with 29 per cent of households feeling optimistic that their finances will improve in the next 12 months.

However 43 per cent expect their financial situation to deteriorate.

Overall the index suggested that households are more optimistic now than they have been since April 2010.

The latest figures from the Office for National Statistics show that consumer price index inflation fell to 2.4% in June, down from 2.8% in May.

The wet weather caused retailers to cut the price of clothing and footwear by 4.2 per cent, which contributed to the fall, along with food prices.

The cost of transport also fell, with petrol prices down by 4.3p a litre to £1.33.

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