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Household finances deteriorate after improvement in February

The squeeze on household budgets was felt more strongly this month than last.

British household finances deteriorated at a slightly faster rate in March than February, with a third of households feeling downbeat about and their incomings and outgoings, a new report by Markit Economics has shown.

The Household Financial Index, a monthly survey of consumer behaviour, dropped from February's 14-month high of 38.7 to 37.8 this month. An index reading below 50 indicates deterioration in sentiment, while numbers higher than 50 suggest improvement. However despite this continued squeeze on personal finances, other sub-indices for March showed mild improvement.

Jack Kennedy, a senior economist at Markit said:

Although households remain under considerable financial pressure, some green shoots of hope are in evidence as we move into spring. Sentiment edged lower in March but remains better than at any time during 2011, and particularly compared with the lows seen late last year at the height of the euro debt crisis worries.

General unemployment in the UK currently stands at 8.4 per cent -- rising to 18.9 per cent for recent graduates -- yet the job security index reached a two-year peak following an increase in workplace activity levels. Household spending also appears to be stabilizing this month, after falling consistently since the beginning of 2012.

Among British households concerns about inflation -- at their highest in six months -- . Kennedy said:

Current price perceptions and future inflation expectations both moved higher [in March], in part related to recent increases in petrol costs. If the predicted fall in inflation fails to fully materialise this year, weak pay growth means that households will continue to see their finances squeezed from all sides.

Alice Gribbin is a Teaching-Writing Fellow at the Iowa Writers' Workshop. She was formerly the editorial assistant at the New Statesman.