Household finances improved slightly in January but new figures still pointed to people's cash reserves being squeezed hard.

Markit's Household Finance Index rose to 37.7 in January (50.0 denotes stable finances) after falling to a seven month low of 36.8 in December.

Prior to December's drop, the index had risen for five of the previous six months to November's high of 39.3.

Markit reported that a balance of 25% of respondents indicated that their finances had deteriorated since December, with 31% reporting a deterioration and 6% an improvement.

January's improvement was primarily due to more positive sentiment among homeowners and mortgage holders, which commentators said was likely to have been influenced by some mortgage interest rates falling.

In contrast, people in rented accommodation were reported to have seen their finances deteriorate at a record rate in January.

There were a number of positives in the survey, with households reporting a reduced squeeze in cash availability, while savings fell at the second lowest rate since late-2010.

Debt levels rose only slightly while job insecurity was at a four-year record low.

Access to unsecured credit was at a survey high in January, suggesting that the Funding for Lending Scheme was having a positive impact.

Households' appetite for making major purchases was the highest since October 2010, while their pessimism over the prospects for their finances over the year ahead eased to a four-month low.

Consumers' perceptions of the current inflation rate fell back to a five-month low.

However, more worryingly for the Bank of England, consumers' inflation expectations for the year ahead edge up for a second month running.

There were also concerns over income from employment, which fell at its sharpest rate for six months in January, according to the survey.

"Any improvement in the household finances' index is welcome news, but they still remain stretched and the concern remains that consumers will be restrained in their spending over the coming months which will limit growth prospects," said Dr Howard Archer, Chief UK Economist at IHS.

Recent figures from the Office for National Statistics showed retail sales volumes fell 0.1% month-on-month in December and by 0.6% quarter-on-quarter in the fourth quarter of 2012.

MM

Related share prices