Financial wellbeing deteriorates

The state of household finances in the UK declined in the second quarter of 2012, according to the Alliance Trust's UK Financial Reality Index.

According to the index, a reading of 100 denotes the long-term average of financial well-being, defined by three factors; the economic background, household budgets and net wealth.

In the second quarter this fell to 61.3, having been at 66.4 in the opening three months of the year, with two of the three indicators in decline.

On the one hand, the economic background actually brightened slightly from 63.4 to 65.3, due to the fall in unemployment.

However, the household budget element saw a drop from 67.5 to 61.3 and this was the lowest since the third quarter of 2011.

It dropped because a continued decline in real incomes raised the burden of mortgage repayments, counterbalancing an easing of inflation elsewhere.

In addition to this, the new wealth index plunged from 67.5 to 57.4 due to weaker housing and equity markets, with high household debt levels having a significant impact on this sub-index.

Senior economic analyst at the Alliance Trust Linsey Thomson said: "Our index posted a small decline in Q2 highlighting that financial conditions facing households up and down the country remain very tough."

He concluded: "Hopefully, continued falls in inflation through the rest of the year will help to alleviate some of these challenging conditions but, with unemployment still high and wage growth muted, households look set to face difficult conditions for the foreseeable future."

This gloomy outlook may leave many households and individuals struggling to pay off their debts while making other ends meet.

However, by taking the best help and advice available, even those in deep financial trouble can find a way out to a brighter future. 

A recent survey by insolvency professionals' body R3 recently found just over half the population finds it difficult to make ends meet from one payday to the next.

By Joe White