The squeeze on family finances is beginning to
loosen its grip, paving the way for an increase in consumer spending that will
help drive the recovery.
Signs of growing confidence among households are evident in separate
surveys on Monday from Markit and Deloitte, and come ahead of official figures
this week that are expected to show the double-dip recession is finally over. Markit
found that, although household finances deteriorated in October, the scale of
the squeeze was the “least marked” in almost two years. Deloitte said that
consumer sentiment was at its best since the third quarter of last year and
pointed “to a likely upturn in consumer activity”.
Consumer spending underpins almost two thirds of economic output in the
UK but has been depressed since 2010 due to rising unemployment and
sub-inflation pay deals, as well as the large overhang of £1.5 trillion of
household debt. Economists hope that lower inflation and the improving jobs
market will lead to a revival in spending over the next year, building on the
0.7pc growth for the three months to September that the Office for National
Statistics (ONS) is expected to report on Thursday. The ONS figures will bring
to an end nine months of contraction in which time the economy shrank by 1.1pc,
but economists will warn that the numbers mask the weak state of underlying
growth.
Deloitte’s Consumer Tracker found that concerns about the level of
disposable income have eased by 10 percentage points in the past year, from
43pc to 33pc of respondents. Households are also more comfortable with their
levels of debt, with those concerned down from 16pc to 10pc. Ian Stewart, chief
economist at Deloitte, said: “The Consumer Tracker points to a reduction in the
stress on the household, with consumers more positive about their income and
employment, and working hard to balance the books by reducing their levels of
debt.”
Markit’s findings were similar. “Household finances were supported by a
near stabilisation of employment income in October, alongside a reduced squeeze
on cash availability and the most marked drop in debt levels for just over two
years,” it said. Around four times as many of Markit’s survey respondents,
29pc, reported that their household finances worsened in October as those that
indicated an improvement, 7pc. However, the finding still placed the household
finance index “at its highest level since December 2010, to signal a much
weaker squeeze on households’ financial well-being than has been the case for
around the past two years”, Markit said.
Rising energy bills and fears about the general economic landscape,
though, are undermining any resurgent confidence – with households turning
pessimistic about the longer-term outlook. Inflation is expected to rise from
the current 2.2pc low and policymakers have voiced fears about the eurozone,
the US and emerging market growth. Markit found that there had been “an abrupt
end to the improving outlook reported throughout the summer” in October, as
families predicted that conditions will worsen again.
Tim Moore, senior economist at Markit, said: “Households indicated sharp
downward revisions to their financial outlook in October, bringing a rather
abrupt end to the improvements seen throughout the summer. While pressures on
current finances were reported to have moderated again, helped by stabilising
incomes and lower debt, the steep reversal in future sentiment is a clear signal
that households are likely to keep a tight rein on spending in the months
ahead.” Deloitte’s Mr Stewart added that the “brighter outlook is tempered with
caution as there is no evidence yet of a significant loosening of the purse
strings”.
Telegraph UK
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