Households `most pessimistic about finances since early 2009`

Growing debts and rising costs of living have contributed to a pessimistic outlook amongst households regarding their finances, a new report suggests.

Markit`s latest Household Finance Index - which tracks household spending, saving and debt levels - fell to 36.1 points in January, down from 39.9 in December 2010.

The report showed an increase in household debt and a sharp fall in major purchases by consumers. Cash available to spend fell at the fastest rate since May 2009, leading to a fall in savings.

Inflation expectations increased, with 89% of households saying they thought consumer prices would rise over the year - an opinion undoubtedly influenced by this month`s VAT rise.

An expert at debt management company Gregory Pennington said: "This report highlights that although we`ve seen a few improvements in the economy over the last year or so, things are still difficult for many people and could get worse.

"Debt in particular will be a concern for a lot of people, especially if prices continue to rise. There could also be a higher risk of unemployment, which could leave some borrowers unable to repay their debts.

"We urge anyone facing problems with debt or any other financial difficulty to get help from an expert at the earliest opportunity."