British households are facing the worst financial strain in nearly two years, according to a new report.

Financial services company Markit said its Household Finance Index dropped to a 22-month low in May, showing the squeeze faced by UK households.

The index, which measures household finances, showed a drop in score from April to May, suggesting that Brits are feeling growing pressure on their finances.

In a period of heightened uncertainty ahead of the EU referendum, Markit’s HFI survey pointed to a marked financial squeeze in May

Philip Leake, economist, Markit
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The index measures people’s reports of improvement or decline in their household finances, with anything below 50 indicating a decline.

Markit said the figure dropped from 45.1 in April to 42.3 in May, though was still above the average of 39.9 that was recorded when the survey started in early 2009.

The drop was put down to higher prices, weak pay growth and a drop in savings.

The sharpest fall came in Wales, followed by London, according to Markit.

Philip Leake, economist at Markit, said: “In a period of heightened uncertainty ahead of the EU referendum, Markit’s HFI survey pointed to a marked financial squeeze in May, but households’ expectations for the year ahead were little changed since April.”

He said the data suggested that “strong price pressures” were a key factor in the downturn.

“Along with higher prices, households reported weak pay growth and a sharper drop in savings," he said.

There's little expectation that the Bank of England will raise interest rates, according to Markit. Image by isak55/Shutterstock.com

“However, greater inflation perceptions appeared to have little impact on interest rate expectations in May.

“The proportion of respondents expecting a rise in the base rate over the next year slipped back below 50%, resuming the trend seen in February and March.

“With near-term economic prospects far from certain, the majority of households do not envisage monetary policy tightening any time soon.”

Recent research, reported by Bilgo, revealed the constraints on Brits’ finances, with millions forced to move back in with their parents after a break-up because they simply can’t afford to live alone.

The research, by Churchill Home Insurance, revealed that as many as 7.2m people – 14% of the adult population – have ended up back in the family home following the end of a relationship. 

More than half (55%) of those who moved back in with their parents said they had done it for financial reasons, while just over a third (37%) returned for parental emotional support, and 13% needed help with childcare.