Poor see biggest drop in household finances

Markit Household Finance Index for November pointed to the sharpest deterioration in three months with low income groups and public sector workers reporting the worst falls

Household finances have plummeted at the sharpest pace since August, according to a monthly survey that underlines the worsening economic situation in the UK.

The survey also revealed that the downturn in household finances was unevenly distributed and had increased the gap between the highest and lowest income groups.

Low income groups and public sector workers reported the sharpest falls in income while those on higher incomes reported only a limited fall.

The headline Markit Household Finance Index (HFI) stood at 34.6 in November, down from 35.0 in October, pointing to the sharpest deterioration in household finances for three months.

Any figure below 50.0 indicates worsening household finances.

Markit said: "The latest reading was much weaker than the survey average (37.6), signalling that household finances continued to deteriorate at a far steeper pace than the overall trends seen in 2009 and 2010," the survey said.

It follows a series of gloomy indicators of economic health that will intensify pressure on the Treasury to boost growth and employment.

A steep rise in inflation this year to 5% has eaten into living standards following a stagnation in wage rises to an average 2%.

Worryingly, the survey found pessimism about household finances over the year ahead reached 48%, which is double that of positive responses at 24%.

Tim Moore, senior economist at Markit, said families were unwilling to make major purchases or investments while the situation remained unstable.

He said: "While all eyes are on whether the UK economy will double-dip, the latest survey is a timely reminder that the household recession hasn't even paused for breath.

"Scratching below the surface illuminates uneven strains across household income categories. Most starkly, the overall figures mask the survey's widest ever divergence between the financial situation of the top and bottom income groups."

Rightmove survey downbeat

The gloomy outlook was reflected in a housing market survey that found house sellers have dropped their average asking prices by the largest margin for almost four years.

A report by online estate agents Rightmove showed the number of new people putting their home on the market has also shrunk back to levels not seen since US investment bank Lehman Brothers crashed in 2008.

All regions in England and Wales showed monthly price falls over the last quarter, the first time this has happened in more than three years.

The estate agents said the tumbling figures prompted suggestions of opportunities for landlords to snap up a winter bargain and take advantage of the current rental boom.

It said: "Homes went on the market for an average of £232,144 in November, a 3.1% fall on last month's prices, as confidence dwindled.

"The typical drop of £7,528 from October's prices was the biggest monthly fall in monetary terms since December 2007, although the figure was still up by 1.2% on the same time last year."

Spokesman Miles Shipside said 70% of home movers feel that it is currently a bad time to sell. "Interestingly, they also hold the view that sellers' travails give buyers much improved negotiating power, with 61% stating they felt it was currently a good time to buy."

The drop has been compounded by a lack of fresh sellers coming to the market, indicating the seasonal slowdown has come early, the monthly house price index found.

Rightmove said the rental sector has soared as "trapped renters" have struggled to raise the cash for a deposit and lenders have encouraged landlords in the buy-to-let market.

Shipside said: "Reports suggest that buy-to-let mortgage approvals are at their highest for nearly three years.

"With good prospects for long-term tenant demand from those that cannot buy and consequently solid rental returns, investors will be looking forward to seeing sellers suffer a longer than usual buyer slowdown this winter."

Contributor

Phillip Inman, economics correspondent

The GuardianTramp

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