UK household financial conditions improve in Q1

UK household financial conditions improve in Q1

UK households saw an improvement in their financial wellbeing during Q1, according to Alliance Trust's UK Financial Reality Index.

In the first quarter of 2013, the index increased from 84.4 to 87.9, its highest level since Q4 2009, largely due to a relatively strong level of equity market performance, an improvement in GDP growth and a lower level of insolvencies.

The Net Wealth sub-index rose above the critical level of 100 for the first time since Q2 2010. However, the other two sub-indices, further to the headline rate, remain below the critical level of 100, indicating that overall conditions remain generally weaker than the long term average.
The fall in the Household Budget sub-index from 86.8 to 86.1, its lowest level since Q2 2012, further highlights the tough conditions being faced.  

Shona Dobbie, Chief Economist at Alliance Trust, said: "It is encouraging to see our Financial Reality Index rising  during Q1, highlighting that financial conditions facing UK households are improving. In particular, the Net Wealth sub-index rising above the critical level of 100 is a positive sign.

"However, the headline index and the other two sub-indices reflecting the Economic Background and Household Budget, remain well below 100, signalling that conditions remain weaker than the long term average. Despite the index being pushed higher by a relatively strong stock market performance and a small improvement in economic growth, the economic background remains challenging and household budgets are still under considerable strain.

"Our Financial Reality Index has proved to be a good predictor of general consumer spending patterns. The persistent weak level of overall financial conditions, therefore, points to consumer spending growth remaining at a relatively muted level through the second half of 2013".

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George Bailey