Consumers upbeat as cost of living continues to ease

The positive swing in attitudes to future finances took the overall index the bank’s Spending Power Report to an all-time high level of 154 points in January.

The monthly report found people are spending almost 1 per cent less on essentials than they were a year ago, with falling gas, electricity and motor fuel costs helping to ease the pressure.

But the mood across the UK remains mixed, with confidence in spending power highest in London and lowest in Northern Ireland.

Sentiment towards the current situation was the highest the report has recorded since its launch in 2011. The report said this was driven by several factors, including improved feelings towards the country’s financial situation, employment and inflation.

Four out of five (80 per cent) of those surveyed said they had some discretionary income left over after spending on essentials. Among those with some leftover cash, there is a tendency to spend it, with people saying they would typically spend 46 per cent of any money they had left over, put 24 per cent of it in savings and use 14 per cent of it to pay off debt.

Despite the uplift in mood however, people generally remain cautious about the future. Sentiment towards the future fell back slightly in January, and future discretionary incomes are expected to be relatively stable.

Patrick Foley, chief economist at Lloyds Bank, said: “With inflationary pressures likely to remain in check and some pick-up in pay growth now emerging, households should continue to feel better off through 2015.”