The gloom hanging over household finances started to lift this month, a survey revealed today, as the squeeze on consumer spending power loosened its grip.
The Markit Household Finance Index rose to 38.7 from 36.4 in February, which, while still representing a deterioration in household finances, is the best reading since December 2010.
The improved mood was driven by lower inflation, which fell to 3.6% in January, and the consequent weakening of the squeeze on household spending power at the start of 2012, Markit said.
While inflation is still far higher than wage growth, there is some hope that the lower cost of living will relieve some of the pressure on families in the months ahead.
Tim Moore, senior economist at financial information services firm Markit, said: "February's survey adds to the tentative signs that falling inflation has alleviated some of the squeeze on household finances and lifted expectations from the record lows of late last year."
Elsewhere, the survey showed that household debt broadly stabilised in February, while the balance of respondents noting a rise in demand for unsecured credit was the lowest for 11 months.
Looking ahead, households reported the lowest degree of pessimism about their year-ahead financial prospects since April 2010.
Around 43% of respondents anticipate that their finances will worsen, while 28% expect an improvement, Markit said.
The data showed a marked jump in sentiment among people with a mortgage, Markit said, reflecting greater confidence that interest rates will stay at record low levels.
However, people living in social housing bucked the overall trend, with more than three times as many respondents in this category expecting their finances to worsen as those that anticipate an improvement.
However, the outlook for the labour market is still fairly bleak, according to the survey.
For the first time in more than two years, private sector employees were more downbeat about their job security than public sector workers, Markit said.
The rate of decline in private sector job security was the fastest since June 2009, with around one in four people in this category reporting a deterioration in February.
Moore added: "Stretched incomes mean that household finances will remain under pressure until we see a sustained upturn in overall economic conditions. At present, wider job market uncertainty is constraining spending even among those seeing their own situation stabilise."
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