40 per cent of households expect finances to worsen over the next 12 months

Nearly half of UK households expect their finances will deteriorate over the next 12 months as inflation expectations were their highest for four months in September

Around 40 per cent of households now anticipate that their finances will deteriorate over the next 12 months, with just 29 per cent expecting an improvement. Overall, This represents the least optimistic financial outlook since March 2010.

Markit’s Household Finance Index for September found that inflation perceptions demonstrated the greatest month-on-month acceleration since January 2011 at the same time concerns over future levels of inflations rose.

Markit senior economist Tim Moore says: “A summer of relative calm on the household finance front has brought with it an improvement in expectations for the year-ahead. The recent stabilisation in overall job insecurity also contributed to a less downbeat assessment, with households now the least pessimistic about their future finances since early 2010.

“However, households appear to have become more concerned about the inflation outlook, with cost of living expectations rising sharply since August. Higher fuel costs are likely to have sparked the uptick in inflation expectations, possibly alongside industry warnings of greater food prices ahead. Around three-quarters of households noted an increase in their living costs during September, and the monthly jump in inflation perceptions was the largest since the January 2011 VAT rise.”

Around 12 per cent of households noticed a decline in income from employment against 8 per cent who noticed an increase. The index measuring job security stayed roughly in line with the average for 2012 but remains higher than at any point during 2011. Private sector employees were marginally less optimistic about job security than those in the public sector.