Recent surveys reviewing the state of family finances in the UK have revealed that although budgets in April were significantly squeezed things have improved in May.
The latest Income Tracker from supermarket group Asda showed a 7.1 per cent year-on-year fall in family spending power last month, meaning that households had an average of £167 per week to spend – down £13 from March.
According to a report from global financial information services firm Markit however household finances recovered in May to experience the smallest deterioration for four months.
April was made particularly tough for families thanks to rise in the Consumer Price Index from 4.0 to 4.5 per cent, with goods, utilities bills, transport and rental costs all rising during the month.
Charles Davis, Managing Economist at Cebr, the economic group that helps compile the Asda report, commented: “While the Asda Income Tracker showed signs of stabilising in March, as falling food prices pushed down inflation, subsequent rises in transport and utilities prices have pushed the cost of living back upwards
“This is being compounded by lacklustre annual earnings growth, which is currently running at less than half the rate of inflation. Households are under significant financial duress at the moment and it looks like high inflation will keep up the squeeze throughout the year.”
Households seem to have more room to manoeuvre this month, with inflation perceptions easing to their lowest rate since December 2010, according to Markit’s research.
It’s Household Finance Index for May shows that although average finances continued to worsen this month, four out of five income groups were less downbeat about their current financial position than they were in April.
Contributing factors to this included inflation worries declining and job security rising, leading to a spending rise with 26 per cent of respondents claiming they increased the amount they spent in the month.
Tim Moore, Senior Economist at Markit, said: “May’s survey showed a small but encouraging rebound in households’ financial outlook, following a record low during April and declines throughout the first quarter of 2011.
Mortgage holders were much less downbeat than in April, possibly reflecting recent indications that the Bank of England will keep rates on hold for longer.
“Reduced job insecurity and a modest fall in inflation expectations from recent highs also contributed to the slightly less downbeat assessment of future household finances in May.”
Moore cautions however that the Markit figures show that inflation continues to put pressure on families, household debt is increasing and major item purchases are still lower than at the nadir of the recession.