The latest study by the Markit Household Finance Index shows that household budgets are falling faster now that they did during the height of the recession in 2008.
The figures displayed a fall in available cash, income, and savings that has continued its downward trend since 2009.
As a result of the economic climate, families are exercising their efforts to save more and spend less. Rampant unemployment and spreading job insecurity has made tightened household budgets a reality for most families in Britain.
Only around 6% of British families reported an improvement in household finances in the Markit Index.
The Index also showed that since February 2009, the survey reached its lowest point last month. Last month was the third consecutive month to show a fall in household budgets; an incredible 40% of people saw their incomes fall.
Consumers also indicated unwillingness to make big purchases. Only around 50% of survey respondents said that they were likely to make an expensive purchase because of the state of their budget.
Despite the laudable inclination to curtail needless spending, savers are not being rewarded in the current financial climate because of the staggering rate of inflation.
The new Retail Price Index figures have inflation at 5.6%, already shattering the Bank of England’s earlier prediction of reaching 5% by the end of the year.
This hike in the cost of living has understandably made people more cautious with their money, with many withdrawing from overspending on luxuries and trying to stretch their incomes further.
However, this makes the outlook for growth in the UK economy grim for the rest of the year, as consumer spending makes up around two thirds of the UK gross domestic product. With consumers squeezed, the economy is likely to come under pressure as well.
Figures show that the North has seen the fastest decline in household finances, while the South-East, particularly around London, has seen its income decline at the slowest rates.