Financial Mood Less Downbeat - But Not For Long

The tight squeeze on household finances appears to be easing amid signs of a rise in consumer spending, according to two new surveys.

Family budgets were at their least strained for almost two years in October, Markit said, helped by a near-stabilisation of employment income and a drop in debt levels.

A separate survey by Deloitte also found people are starting to loosen the firm grip on their purse strings, with fewer bargain hunting and simply buying less.

But the bursts of optimism may be short lived.

Looking ahead, however, consumers remain cautious and there are no signs of them going on a spending spree as yet.

More than twice as many households expect their financial well-being to worsen over the next year compared with those who expect an improvement, the Markit household finance index found.

Concerns remain about job security and the costs of living, with the vast majority expecting their food, transport and utility bills to go up, according to the Deloitte Consumer Tracker.

Separate surveys found that the squeeze on family budgets is weakening

Tim Moore, senior economist at Markit, said: "While pressures on current finances were reported to have moderated again, helped by stabilising incomes and lower debt, the steep reversal in future sentiment is a clear signal that households are likely to keep a tight rein on spending in the months ahead.

"Weak economic sentiment and worries about rising living costs are again the main factors bearing down on the outlook for households' financial well-being."

Ian Stewart, chief economist at Deloitte, said: "This brighter outlook is tempered with caution as there is no evidence yet of a significant loosening of the purse strings.

"The real test is when we will see a pronounced shift towards greater discretionary spending, especially on big ticket items such as holidays and white goods, and consumers trading up. This will be key to whether we see continued growth in consumer spending in 2013."

The findings come after it was revealed last week that inflation dropped to a its lowest level for nearly three years in September, but analysts warned that energy bill hikes, combined with rising food and petrol costs, will push living costs back up again.

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