Retailers will struggle to make people part with their cash in the run-up to Christmas, suggests the findings of a new survey.
The Markit Household Finance Index for November 2010 found that 29% of those surveyed had experienced a worsening of their household finances during the month, compared with 7% that reported an improvement. Public sector workers were the most pessimistic about the outlook since the survey began.
Rising debt and falling savings meant that the cash available to spend declined sharply, with the propensity to spend on major purchases decreasing at the fastest pace in the survey’s history. In addition, inflation expectations hit a new high as the prices paid for goods and services rose, again, at a survey record rate.
“With a fiscal squeeze hanging in the air, the November HFI data suggest that households are extremely concerned about the state of their current finances and the outlook for next year,” commented Markit economist Tim Moore.
“As Christmas approaches, retailers will cast a nervous eye towards the ongoing weakness in household finances. Attitudes towards making major purchases deteriorated substantially in November. This tends to be an accurate advance indicator of wider spending trends, so points to subdued consumer demand in the coming months. This weakness is all the more worrying as it is reasonable to have expected spending on big-ticket items to have picked up ahead of January’ s VAT rise.
“There are also signs that price rises for necessities such as food, fuel and clothing are squeezing disposable earnings, while falling incomes mean that higher spending is resulting in more debt and lower savings.
He added: “It is therefore difficult to see the UK consumer helping to drive economic recovery as we move into the new year, especially as January’s VAT rise will step up the pressure on household finances.”