Households gloomy over 2013 economic prospects, survey shows

Consumers are braced for another year of austerity after the chancellor's autumn statement failed to lift the gloom that has descended on the UK economy.

According to a survey this month of attitudes to family finances, 43% of households believe their finances will worsen in 2013, compared with 24% who expect their income to improve.

George Osborne was forced to admit in his autumn statement that growth would be lower than expected, but said he planned to boost investment and the long-term prospects for the economy.

However the survey by Markit, the financial data provider, found that "the underlying situation is that household finances are under severe strain from lower incomes and higher living costs".

More households were fearful of losing their jobs than in the previous month, and most expected wage rises to remain below inflation, according to the report.

On balance all five income bands in the Markit household index were pessimistic about the coming year. Regional data showed that households in Wales were the most pessimistic, those in the south-west the least downbeat.

Days after official figures showed growth in the economy was slower than initially thought in the third quarter, news that households are braced for a bleak 2013 will dismay the Treasury, which has based much of its economic strategy on a resurgence in consumer spending.

Without a strong rise in consumer demand, a promised return to growth in the latter part of 2013 could fail to materialise. Firms have held back investments on new plant and machinery until recently and could mothball plans if they see consumers closing their purses and wallets.

Begbies Traynor, the insolvency firm, said about 140 high street shop chains were vulnerable to going bankrupt this year if an expected upturn in spending failed to materialise. It said the shops, which are heavily indebted after a borrowing binge in the boom years, faced significant financial distress if austerity-hit shoppers continued to bargain-hunt and switch to online shopping.

Tim Moore, senior economist at Markit, said: "Households are bracing themselves for yet another year of squeezed personal finances in 2013. The vast majority of households anticipate that their financial wellbeing will either worsen or stagnate next year.

"With three-quarters of all households not expecting any improvement in their finances, the latest survey suggests that domestic consumer demand will remain under pressure in the near term, especially since inflation perceptions remain elevated and job insecurities are prevalent."

Concerns of a growing north/south were borne out by a house price survey by Hometrack, which showed prices rising in most districts across the capital and much of the south-west while the Midlands and the north experienced declines.

Hometrack said the movement in prices was small but were part of a longer-term trend. It said the picture for 2013 would be much the same as 2012, with prices across the country edging down 1% as the London market shows signs of cooling. Hometrack predicts that a reluctance by struggling families to take on more debt will continue to act as a drag on the housing market next year and prices will be more volatile, with continued low sales.

One in five postcodes in England and Wales recorded price increases over the past year but prices have fallen across two-thirds of the country. London has had strong demand from wealthy overseas buyers and consistently outperforms other regions, seeing prices rise in seven out of 10 postcodes this year. Property prices are now 10% higher than at the peak of the market in 2007.

But price growth in London is predicted to slow over the next year, with a 2% annual increase pencilled in. Hometrack said about 912,000 sales should take place next year, well below the Council of Mortgage Lenders forecast that transactions will pick up to around 950,000.