• The Lloyds Bank Consumer Sentiment Index continues to increase, reaching a new high of 115 points in August.

• Confidence in the UK's economic situation continues to improve month on month, with optimism about the housing market continuing to increase, hitting the highest levels since the survey began

• Also contributing to the improvement, negative sentiment about the UK employment situation, and the state of the UK’s financial situation, both eased.

• Spending on gas and electricity bills continues to grow rapidly, reflecting past price increases, with gas and electricity prices remaining a key source of concern about overall price inflation.

The Lloyds Bank Spending Power Report for August found that consumer confidence is rising, reaching a record high, at 115 points, since the survey began in November 2010. Confidence is now a clear 10 points higher than at the start of the year (105 in January 2013), continuing the recent upward trend.

Confidence about the UK's economic situation has improved again. In particular, optimism about the housing market continues to increase, hitting the highest levels in the survey's history, while worries over the employment situation have eased. However, negative sentiment towards consumers’ own personal finances for now remains little changed.

The latter may reflect areas of continued pressure on consumers’ spending. On average, gas and electricity spending continues to grow rapidly, at around 8.5% on a year ago, continuing to reflect price increases around the turn of the year. Gas and electricity prices remain a source of concern for overall price inflation for 76% of respondents. Automotive fuel spending has also accelerated from last month, to around 4% on a year ago, in part reflecting recent increases in fuel prices. Overall, growth in average spending on essential categories remains little changed from last month, at around 3.5% on a year ago, as spending growth eased this month in categories such as food and water bills.

Patrick Foley, chief economist at Lloyds Bank, says: “Consumer sentiment has improved again this month. With spending on essentials remaining relatively stable overall and positive coverage of the improving economic backdrop, this is not surprising, but is very encouraging. Increasing consumer sentiment may in time embolden consumers to spend, so helping to underpin the wider economic recovery. In turn, such spending would further help improve the outlook for growth and jobs.”

Current situation

The majority of consumers remain concerned about the state of the UK's financial situation; however a total of 18% expressed a positive outlook in August, up from 16% in July and 11% at the beginning of the year. Conversely, negative sentiment decreased to 31%, the lowest levels since the research began.

Lloyds HorseWhile still high, negative feelings towards the employment market continue their downward trend to 81% of the UK saying that it is ‘not good’ or ‘not good at all’. This compares to 82% last month, and 87% in May. 16% of respondents now describe the employment situation as ‘somewhat good’, with optimism now strongest among 18-21 year olds, with 22% describing it as ‘somewhat good’.

The number of consumers with a positive view of the housing market continues the recent upward trend reaching a historic peak of 39% compared to 35% in July and 23% in January. Regionally, those living in Northern Ireland have the most pessimistic attitude towards the housing market, with 74% stating it is ‘not good’ or ‘not good at all’ compared to the UK average of 61%. Those in the North of England also continue to be cautious, with 72% stating it is ‘not good’ or ‘not good at all’.

Consumer sentiment towards their own personal finances continues to remain a concern with 46% saying they held a negative view, unchanged from July, and only a little stronger than the 49% with a negative view in August 2012. Pessimism is most widespread among those aged 45-54, with 55% expressing a negative view.

Future situation

While still remaining negative, the balance of opinion between those who feel they will have more money in the future versus those who think they'll have less has continued to improve, rising from -5% in July to -3% in August. Greater London continues to be the only region in the UK that has a positive balance at 10% – a big increase from last month at 3%.

The balance of opinion between those who feel they will be able to spend much more in the future versus those who think the will be able to spend much less also continues to improve. Although still negative at -1%, this figure is the strongest since the survey began, rising from -3% in July and -17% in January 2011.

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