Britain's household finance index drops to record low

A leading household finance index in Britain has fallen for the third month running to its lowest level since it was first compiled in February 2009, even as almost 40 per cent of British households claim their finances have deteriorated between July and August.

The monthly Markit Household Finance Index (HFI), compiled by the leading financial information firm, reveals that the index has declined the fastest, even exceeding that seen during the worst phase of the recession.

About 40 per cent households in the UK - whose spending accounts for two-thirds of the economy saw their finances worsen between July and August, as against a mere six per cent who reported an improvement.

"With a global economic slowdown and an escalating eurozone debt crisis lapping on the shores, it was unsurprising to see households' appetite for major purchases reverting back to its lowest since the start of the year," said Tim Moore, senior economist at Markit. "This squeeze on consumer purchasing power is unlikely to abate in the near-term, with the Bank of England expecting inflation to reach five per cent later this year as higher utility and oil-related prices filter through to household budgets."

The take-home pay of households also dropped for the 11th month in a row - and also to a nine-month low - even as rising prices squeezed household budgets.

"With consumer spending accounting for around two-thirds of UK gross domestic product, this does not bode well for the second half of the year," remarked Moore. "It is likely that the UK economy will be increasingly dependent on external demand."