Increase in consumer spending power

Consumers are finally beginning to claw back more of their wages for discretionary spending, after annual income growth reached its highest level since June 2010 in August.

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Research by Lloyds TSB has revealed that after inflation spending power growth reached 2.2% in August, helping shoppers to earmark £245 more for non-essential items than a year ago.

The boost to Brits’ budgets has resulted in a less pessimistic attitude towards the UK’s financial prospects and the overall employment landscape. In August the percentage of people who felt that the UK’s economic climate was ‘not at all good’ fell by 4% to reach 49%.

A similar downward trend was also recorded for consumers’ perceptions towards the UK’s employment situation, with the percentage of those who felt it was ‘not at all good’ falling from 56% to 42% between February and August.

Patrick Foley, chief economist at Lloyds TSB, supported the idea that consumers should feel confident about the economy’s chances of recovery.

“The trend of improving income growth and the fourth month of rising real spending power suggest that the squeeze on consumers of the past couple of years is finally coming to an end,” he said.

“Barring renewed turmoil from the international environment this is a key building block for an improving economic recovery over the coming year.”

The findings of the recent quarterly focus from the Ernst & Young Item Club also painted a positive picture for the fortunes of Britain’s economy.It predicted that the economy will growth by  1.6% in 2013 and 2.6% in 2014, while real income is set to inch up by 0.4% in 2012 and by 1.5% in 2013.

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