Downturn still damaging personal finances

Friday 20th April 2012

UK consumers saw another small improvement in their financial wellbeing in Q1, according to the latest UK Financial Reality Index from Alliance Trust.

In the first quarter of 2012, the index rose from 62.1 to 66.4.

Yet despite this, the index and all three sub-indices remain well below the critical level of 100, indicating that conditions are weaker than the long-term average.

On-going weak GDP growth, rising unemployment, high levels of consumer debt and a continued loss of purchasing power, persistently weigh on the financial conditions facing households.

Linsey Thomson, Senior Economic Analyst at the Alliance Trust Economic Research Centre, said: "Our index posted another small increase in Q1 but remains well below the critical level of 100, indicating that financial conditions are still weaker than the long term average.

"In Q1, we saw another fall in the economic background index due to further increases in unemployment and lacklustre economic growth. The improvement in overall financial conditions was driven by the net wealth index, primarily due to stronger equity markets and a rise in house prices. On top of this, the household budget index also rose in Q1, however, muted wage growth means that households continue to suffer a loss of purchasing power.

"Our Financial Reality Index has proved to be a good indicator of general consumer spending patterns. The persistent weak level of financial conditions therefore points to continued muted consumer spending growth as we move through 2012."

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Mike Jones