by business editor Trevor Sturgess

Household finances are falling at a faster pace as higher interest rates push up the cost of mortgages.

According to the latest Markit Household Finance Index, which monitors and anticipates changing consumer behaviour, they showed the sharpest deterioration for four months.

Cash availability dropped at the fastest rate in 2012 to date as more people, especially those in the public sector, worry about job security.

A majority of people expect the cost of living to rise in the next 12 months.

Financial expectations remained downbeat, with 46% of households anticipating their finances will worsen in the next 12 months, while only 26% predict an improvement.

Again, private sector workers are less downbeat than those in the public sector - with 41% of the former expecting their finances to worsen while 52% of the latter fearing a deterioration.

Tim Moore, Markit senior economist and author of the report, said: "May's survey shows another intensification of the household finance downturn, with the trend moving into full scale reverse after some encouraging signs earlier in the year.

"Households saw the amount of cash left in their pocket fall at the fastest pace so far in 2012, with mortgage holders and public sector workers feeling the greatest squeeze.

"With some mortgage borrowers being hit by rising repayments as higher standard variable rates come through, these households noted the biggest stretch on their finances and cash availability since last autumn.

"The latest survey also gives an early indication that the UK economy continues to stutter through the second quarter, with respondents signalling an overall stagnation of their workplace activity."