Consumers expect their finances to get worse in the coming year but are slightly more willing to spend money on major purchases as worries about job security are easing, a survey showed on Monday.
Markit's headline Household Finance Index dipped to 37.8 in March from February's 14-month high of 38.7, and well below the 50 level which would mark an improvement in Britons' finances.
Just days before Chancellor George Osborne presents annual budget, the survey highlights Britons' still fragile morale in the face of rising unemployment, meagre wage growth, high inflation and government spending cuts.
But survey compiler Markit said there were some underlying improvements in sentiment.
Although households remain under considerable financial pressure, some green shoots of hope are in evidence as we move into spring, Markit economist Jack Kennedy said.
While almost a half of households think their finances will get worse in the coming year, overall sentiment remains better than at any time in 2011.
The latest survey showed easing concerns over job security amid signs of a pick-up in economic activity in early 2012, Kennedy said. This supported spending levels and led to an improved appetite for making major purchases.
Sentiment towards making big-ticket purchases, such as cars and holidays, was the least downbeat since December 2010, the month before value-added tax was raised.
The Bank of England and the government expect consumers to ramp up spending this year, as falling inflation eases the squeeze on people's living standards.
However, record high oil and petrol prices have raised concerns that inflation will not come down as much as predicted, a fear the Markit survey also reflected.
Current price perceptions and future inflation expectations both moved higher, in part related to recent increases in petrol costs, Kennedy said.
If the predicted fall in inflation fails to fully materialise this year, weak pay growth means that households will continue to see their finances squeezed from all sides, he said.
(Reporting by Sven Egenter; Editing by Susan Fenton)