LONDON, Feb 19 (Reuters) - British households are expecting their finances to improve over the next 12 months for the first time in at least five years, a survey showed on Wednesday.
Markit's Household Finance Index for February, which gauges financial well-being, suggested the gloom cast over householders' finances since the severe recession of 2008-09 was now starting to lift.
Its measure of expectations about the coming year crossed the 50 mark that signifies optimism for the first time since the survey started five years ago, touching 50.7 from 46.1 in January.
And while the survey's headline index was still a long way below the 50 threshold, it showed general pessimism about finances waned for a third straight month, as it rose to 42.1 from 41.7 - also a new high.
"The tide has started to turn for UK household finances, as falling inflation and improvements in labour market conditions helped reduce the squeeze on budgets to the lowest for at least five years in February," said Tim Moore, senior economist at survey compiler Markit.
"Households noted the most subdued outlook for living costs since early 2010," he added.
On Tuesday, official data showed inflation slipped below the Bank of England's 2 percent target for the first time in over four years last month.
Before December last year, annual inflation exceeded the Bank of England's 2 percent target every month since December 2009, eroding the spending power of households and making the fall in living standards a big political issue ahead of next year's elections.
Consumers have been at the forefront of Britain's economic recovery, but the Bank of England has warned that business investment will need to rise if the upturn is to endure long into the future.
Although the economy has grown at a quicker pace over the last few years than most economists and policymakers expected, the pace of expansion could take a brief knock from the severe wet weather and flooding across the south of England.
"People living in the southwest reported a marked dip in their workplace activity during February, while the trend in overall UK household spending was the weakest recorded for just over two years," said Moore from Markit.