Rising cost of food and fuel puts squeeze on households

The rising cost of the weekly shop and filling up the car with fuel bore down on inflation-hit households in April as disposable incomes shrank at the fastest rate for three months.

Markit's household finance index showed nearly five times as many families suffering a tightening squeeze on budgets as those seeing an improvement in their financial situation during the period.

The figures came as a Lloyds TSB report found that Britons have suffered the biggest drop in their average spending power in more than a year, with the average family £113 worse off than a year ago.

The latest findings will fuel worries at the Bank of England about the impact of persistently high inflation. The Bank's official inflation benchmark rose to 3.5 per cent in March — the first rise in six months — and officials are worried it will linger above 3 per cent into the second half of this year.

Markit senior economist Tim Moore said: "Worsening household finances are especially disappointing as it follows some signs that the consumer gloom had started to lift."

Consumer confidence is a key factor in the economy's ability to bounce back from the economic crisis. So far, it has been sluggish, although figures on the retail sector last week came through stronger than expected.

Economists are split over how strong the country's gross domestic product will be when the figures are announced tomorrow.