Household finances in the UK fell more sharply in August than the previous month after rising levels of unemployment hit average incomes and persuaded millions of families to cut back on spending. The IHS Markit UK household finance index was down following steady increases through May, June and July as households, which had become less pessimistic during those three months, became gloomier about their personal finances. In a blow to hopes for a sustained recovery following government moves to ease the lockdown, the index, which measures households’ overall perceptions of financial wellbeing, fell from 41.5 in July to 40.8 in August. A figure above 50 indicates an improvement in household finances. Last month the GfK consumer confidence barometer found that the fear of rising redundancies, the end of the furlough scheme in October and concerns about the health risks of high street shopping hit consumer confidence. Markit said its latest snapshot signalled “a further, slightly sharper, deterioration in the financial situation of UK households”. It add that the next few months were “just as gloomy” after households said they remained “highly pessimistic” about their financial wellbeing over the coming 12 months. The report said: “Caution surrounding non-essential expenditure continued in August, with UK households recording a further reduction in their overall spending. The rate of decline did ease from July, but was still sharp.” The ongoing Covid-19 pandemic and reports of substantial redundancies across many industries from manufacturing to hospitality heightened their sense of anxiety, the report said. Lewis Cooper, an economist at IHS Markit, said: “Overall, the data hint at some worrying trends when put in the context of the significant recession facing the UK. Although lockdown measures are looser, households are spending less, earning less and unsure about their jobs, all of which has the ability to add severe friction to the pace of the economic recovery,” he said. A separate report by the London School of Economics’ centre for economic performance found that official unemployment statistics were underreporting the number of people being made redundant or self-employed losing work. A review of rising joblessness since February shows a decrease in employment between February and June of more than 15 percentage points. In contrast, official figures show unemployment as stable. “With hours worked only at 80% of the level from February, the picture is bleak – the UK economy is on track to suffer its biggest unemployment shock since at least the 1980s recession,” it said.