The Markit Household Finance Index has revealed that households are at their most pessimistic about their finances since April 2009.
According to Markit, households are concerned about rising inflation and the survey suggests a gloomy outlook as finances are expected to deteriorate over the next 12 months.
The index fell to 36.1 points in January, down from 39.9 in the previous month – representing a 20-month low.
Concerns about inflation were reflected in the survey as 89% of households said they expected average prices for goods and services to rise over the year.
Last week, official data revealed consumer price inflation rose to 3.7% in December – the highest level for eight months.
The recent VAT hike is expected to push inflation past the 4% mark in the short-term, according to many experts.
Tim Moore, a senior economist at research group Markit, comments: “Household finances deteriorated further from the already downbeat picture taken at the end of last year.
“The recent VAT increase, higher inflation and squeezed incomes mean that households are once again running just to stand still. Little respite appears around the corner,” added Mr Moore.
Meanwhile, the survey also revealed that households with a mortgage are pessimistic and concerned for their finances over the next 12 months.
This is primarily due to the threat of rising interest rates as the Bank of England faces pressure to hike rates to combat stubbornly high inflation.