In the first quarter of 2010, Alliance Trust's UK Financial Reality Index fell from a revised level of 90.5 to 77.3, primarily due to subdued levels of economic activity and lower levels of earnings growth and real disposable income. This decline takes the headline index further below the critical level of 100, indicating that consumers' financial health remains generally weak.
Shona Dobbie, head of the Alliance Trust Research Centre, said, "It is disappointing to see our index of consumers' financial wellbeing deteriorating once again, following several quarters of improvement. This downward move has been largely due to lower levels of earnings growth and the negative impact of higher levels of inflation on real disposable income. In addition, economic activity remains relatively subdued and there has been only a very slight improvement in the labour market. Households have been helped during the last few months by some recovery in house prices and relatively strong equity market performance, but the overall financial situation facing households remains clouded by the uncertain economic and fiscal outlook and the possibility that unemployment could rise further.
“Our index, which has been a good predictor of consumer expenditure, suggests that consumer spending will remain relatively weak in the coming months. Unfortunately, the prospect of cuts in public spending and increases in taxation following the election are expected to add further to the pressures facing households."
