Household finances have deteriorated at the fastest rate since April 2009 this month, with confidence about the year to come at rock bottom. The latest Markit Household Finance Index found around 34% of households had reported a worsening in their current finances, compared to just 6% that saw an improvement, leaving this month’s index at 36.1, down from 39.9 in December. Cash available to spend fell at the steepest rate since May 2009, placing further pressure on savings and causing household debt to rise for the fourth successive month. The recent rise in indebtedness contrasts with the paying-down of debt that had been evident throughout much of last year. The index measuring UK households’ outlook for their finances dropped to its lowest since March 2009, with mortgage holders particularly downbeat in January. With interest rates expected to rise, some 48% of mortgage holders reported a negative 12-month outlook for their finances compared to 39% in December. Tim Moore, senior economist at Markit, said: “January’s HFI survey indicates that household finances deteriorated further from the already downbeat picture taken at the end of last year. The recent VAT increase, higher inflation and squeezed incomes mean that households are once again running just to stand still. Little respite appears around the corner, as survey respondents reported the most pessimistic outlook for their finances since early 2009. “Views on whether now is a good time for major purchases, such as buying a car or other big-ticket items, showed by far the largest monthly deterioration in the history of the survey, reflecting the VAT rise but also deeper concerns about spending power and finances for the year ahead. “Therefore, the latest survey captures the essence of the Bank of England’s policy dilemma. Inflation expectations for the year ahead have risen, not surprisingly, but high unemployment and fiscal tightening are already dampening household demand and risk weakening economic growth. “If the muted pay pressures suggested by the HFI survey keep underlying inflation pressures in check then the Bank of England will feel more comfortable kicking the rate rise can further down the road, given the risk of choking off an increasingly fragile-looking recovery.”