This is according to Alliance Trust's UK Financial Reality Index which shows that in the first quarter of 2012 the index rose from 62.1 to 66.4.
Yet despite this, the index and all three sub-indices remain well below the critical level of 100, indicating that conditions are weaker than the long term average.
On-going weak GDP growth, rising unemployment, high levels of consumer debt and a continued loss of purchasing power, persistently weigh on the financial conditions facing households.
Commenting, Linsey Thomson, senior economic analyst at the Alliance Trust Economic Research Centre, said, "In Q1, we saw another fall in the economic background index due to further increases in unemployment and lacklustre economic growth.
“The improvement in overall financial conditions was driven by the net wealth index, primarily due to stronger equity markets and a rise in house prices. On top of this, the household budget index also rose in Q1, however, muted wage growth means that households continue to suffer a loss of purchasing power.
“Our Financial Reality Index has proved to be a good indicator of general consumer spending patterns. The persistent weak level of financial conditions therefore points to continued muted consumer spending growth as we move through 2012."
The main findings of the Q1 Financial Reality Index are:
- The economic background component fell from 69.9 to 63.4, recording its third consecutive quarterly decline, making this the weakest component of the Financial Reality Index. This index has been below 100 for three quarters now, indicating that economic conditions facing households are challenging. Over the quarter, the main drag came from further increases in unemployment.
- The household budget index rose from 61.7 to 67.5 however the index has now been below the critical level of 100 since the start of 2010. In Q1, lower inflation resulted in lower basic goods price inflation and this also helped disposable income. Nevertheless, with inflation still higher than wage growth, households continue to suffer negative real earnings growth and this is keeping household budgets under pressure.
- The net wealth index increased from 54.9 to 67.5 but remains below the critical level of 100 for the seventh consecutive quarter. A rise in the equity market index and a further improvement in house prices were the main drivers of the increase during Q1. However, high levels of household debt continue to weigh heavily on this sub-index.
