Household finances continue to struggle

Key points to the Index include:

· Spending rose compared to 12 months ago, despite bad weather conditions in December.

· Households take on more debt as incomes fall.

· Pre-VAT rise sales surge unlikely.

· Inflation expectations remain close to November’s post-recession high.

· House prices expected to fall in 2011.

· Outlook for household finances hit by rising cost of living and job insecurity.

Tim Moore, economist at Markit said: “December brings to a close another difficult year for household finances. The UK economy looks to have avoided a double-dip recession in 2010, but there is little evidence that household finances have even begun to recover.

“People have seen their spending power gradually eroded by stubbornly high inflation throughout the year and little in the way of income growth to compensate for this.

“With the fiscal taps set to run cold in 2011, it’s unsurprising that people are unwilling to make major purchases, even with the prospect of VAT rising to 20% in January, and remain downbeat about the outlook for their finances.

“Regional disparities are likely to become increasingly evident as next year progresses, with areas that are reliant on the public sector (either as an employer or source of contracts to business) likely to see the greatest pressure on their household finances.”