By Daniel Hunter

The headline Markit Household Finance Index (HFI) picked up to 37.7 in January, from December’s seven-month low of 36.8. Around 31% of respondents noted a deterioration in their financial situation, compared to 6% that saw an improvement.

Although the resulting index was still below the neutral 50.0 threshold, the latest reading signalled a slower monthly rate of decline in UK household finances at the start of 2013.

The improved trend was overwhelmingly driven by outright homeowners and mortgage holders. By contrast, people in private rental accommodation reported the sharpest drop in their finances since the survey started in early 2009 (around two-in-five noted a decline in January).

An overall moderation in the financial squeeze at UK households partly reflected slower falls in cash availability and savings than one month earlier. Moreover, current inflation perceptions hit a five- month low and households reported the least downbeat sentiment about access to unsecured credit since the survey began four years ago.

There were meanwhile mixed signals about the labour market. Incomes from employment dropped at the fastest pace for six months and activity at work stagnated, but nonetheless perceptions of job insecurity hit a four-year record low (Retail and IT/Telecoms were the main exceptions to this improved trend).

Expectations for finances in 2013

Households’ sentiment regarding the outlook for their finances over the next 12 months was the least downbeat since September 2012. Around 39% of respondents anticipate that their finances will worsen over the year ahead, compared to 25% that expect an improvement.

At 42.8 in January, the resulting index measuring households’ financial outlook was up from 40.3 in December, slightly higher than at the start of 2012 (42.0), and much stronger than in the same period of 2011 (36.5).

There were again divergent trends by job category. People working in Finance/Business Services and Manufacturing are the least pessimistic about their financial outlook. Meanwhile, those working in Retail are the by far the most downbeat. Sentiment among those employed in Retail dropped during January to its lowest for ten months, and was the only private sector job category to record a weaker 2013 outlook than the overall figure for the public sector (40.9).

January data indicated a slower squeeze on cash availability, and the least downbeat sentiment regarding major purchases since October 2010 (when some spending was brought forward ahead of the VAT rise). Households’ appetite for major purchases was in part helped by improved sentiment regarding access to unsecured credit. At 47.7 in January, the index measuring ease of access to unsecured credit rose for the third month running and was the highest since the survey started in February 2009. Meanwhile, household debt rose further in January, but the rate of increase was only marginal and broadly in line with the average reported for 2012 as a whole.

At 45.2 in January, up from 44.0 during December, the index measuring overall job security pointed to the slowest rate of decline in the four-year survey history. This was led by an upturn in sentiment across the manufacturing sector, while Retail and IT/Telecoms were the main exceptions.

Despite job insecurities moderating in January, the survey data indicated an overall stagnation of workplace activity. People working in the manufacturing sector were the most likely to report an increase in workplace activity (31%), while construction employees remained the least likely (15%). Meanwhile, income from employment fell further at the start of 2013, and at the fastest pace since last July. Squeezed incomes were recorded in the vast majority job categories monitored by the survey, with the greatest decline in construction.
Inflation perceptions

Households signalled a drop in their inflation perceptions for the third month running in January. At 84.4, down from 85.8 during December, the index measuring households’ current inflation perceptions was the lowest for five months. The latest reading was also below the full-year average seen in both 2012 (85.5) and 2011 (89.5). Inflation expectations for the year ahead nonetheless picked up fractionally in January, edging up again from the picked up slightly from the three-month low seen during November. People in the aged 55+ category remained the most likely group to anticipate a rise in their cost of living, with the latest index reading the highest since mid-2011.

“January’s survey provides a rare spot of good news on the consumer front, with households’ financial sentiment rebounding appreciably after a dismal end to 2012. Inflation perceptions are the lowest since last summer, while the index measuring households’ appetite for major purchases picked up sharply from the near-record drop seen in December," Tim Moore, Senior Economist at Markit and author of the report said.

“There were mixed signals from the labour market bellwethers in the January survey, with job insecurities the lowest for four years, despite workplace activity stagnating and income from employment falling at its fastest rate in six months.

“Households’ views on access to consumer credit were the least downbeat in at least four years and savings declined at the second-slowest pace since late 2010. Meanwhile, subdued overall demand for unsecured loans highlights that the underlying trend of conservative consumer borrowing has continued unabated into 2013."

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