LONDON (Reuters) - Inflation has gnawed further into the budgets of British households this month, according to a survey that suggests the greatest financial squeeze for consumers since mid-2014 as a national election approaches.
The IHS Markit Household Finance Index fell to 42.4, down slightly from 42.5 in April. The fall was driven by a steep rise in living costs, resulting in the sharpest fall in cash available to spend in two-and-a-half years.
The survey drove home the challenge facing British households as inflation rises, with living costs a big campaign issue ahead of the June 8 election.
Official data on Tuesday showed inflation rose to its highest level since September 2013 at 2.7 percent last month, extending its sharp rise since the vote to leave the European Union.
"Recent pressures on UK consumer finances have been the sharpest for almost three years," said economist Tim Moore at data company IHS Markit.
"There are also signs that some households have responded to stretched budgets by taking on extra borrowing."
Last week, Bank of England Governor Mark Carney warned 2017 will be challenging for consumers, with inflation now almost certain to overtake wage growth.
Moore said pessimism among Britons about the outlook for their finances in the next 12 months was the most widespread since late 2013.
Reporting by Andy Bruce Editing by Jeremy Gaunt