Consumers’ financial wellbeing shows glimmer of hope

Alliance Trust's ongoing study of consumers' financial wellbeing showed a slight up-tick in the first quarter of the year as household budgets improved. Overall, however, consumers remain under pressure and are likely to continue to rein in spending in line with the weak state of their finances.

Alliance Trust's Financial Reality Index, a bespoke measure of how well off consumers are, showed a small improvement in the first quarter of 2009, a glimmer of hope that took it to the highest level since the second quarter of 2008. The headline Financial Reality Index rose to 59.0 in the first quarter of this year, from the previous quarter when it dropped to just 34.5 - a record low since the study began in 1997. The index had been falling continuously since mid-2007.

Alliance Trust Research Centre Head Shona Dobbie said, "Results from our first quarter give faint hope to consumers that the critical situation they are in is beginning to ease slightly but they remain under serious pressure. Although the index shows a definite improvement in household budgets because of lower inflation and falling mortgage rates, this figure is still not above the critical level of 100 that would give them genuine relief.

"With the other main factors that affect their wellbeing, namely the economic background and their net wealth, remaining almost unchanged, the outlook for consumers is still tough. Our index has been a good predictor of future trends in consumer spending over the last 12 years and we expect household expenditure to remain muted over the rest of the year."