By Daniel Hunter

At 41.5 in July, up from 40.8 in June, the headline Markit Household Finance IndexHousehold finance sentiment is the strongest (HFI) rose to its highest level since the survey began in February 2009.

The increase in the index signalled a further moderation in the degree to which household budgets were squeezed during July. Although the latest reading was still below the neutral 50.0 mark, the index has now risen in four of the past five months and is well above the average seen over the four-and-a-half year series history (37.8).

Close to 26% of survey respondents signalled that their finances deteriorated in July, while 9% indicated an improvement. The majority of households (around two-thirds) noted that their finances were unchanged from one month previously.

Of the main housing categories, people that rent from a private landlord were the least downbeat (a survey-record high of 44.7 in July). Meanwhile, those that rent from a local authority / housing association were by far the most pessimistic (33.4). The index measuring sentiment among mortgage holders rose fractionally to a new record high of 42.0, but those owning their home outright saw a slightly faster deterioration in finances than one month earlier (41.5 in July, from 43.4 in June).

Households’ financial outlook for the next 12 months continued to improve in July, with the index rising for the fifth consecutive month. At 45.3 in July, up from 44.4 in June, the index was at its highest level since March 2010. Around 37% of survey respondents expect their finances to worsen over the year ahead, compared to 27% that anticipate an improvement (around 36% forecast no change).

People working in the private sector signalled an optimistic outlook for their finances in July (51.2), contrasting with a downbeat assessment among public sector employees (42.4). Of the main job categories, Finance/Business Services employees (59.8), IT/Telecoms staff (56.1) and Manufacturing workers (52.4) are the most confident, while those with Construction jobs are still the most downbeat (33.7).

“The latest consumer sentiment survey shows that it’s not just the weather that has taken a turn for the better in July, as diminishing job insecurities and rising workplace activity helped lift the household finance barometer to its highest mark since the survey began four-and-a-half years ago," Tim Moore, Senior Economist at Markit, said.

“Signs of a sustained recovery across the UK economy and a corresponding upturn in labour market conditions were key factors in alleviating strains on consumer budgets.

“While higher property values may have supported household finance sentiment among homeowners, there was evidence to suggest that this summer’s brightening picture is not solely a reflection of rising prices for bricks and mortar. Increased income from employment during July, alongside a much less downbeat assessment of financial wellbeing among people in the private rental sector, highlighted a broad change of momentum. Private sector workers reported the most marked rise in income levels since the survey began four-and-a-half years ago."

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