Optimism and spending power rises for families

HOPES of a recovery in the Scottish economy received a fresh boost yesterday when it was revealed that consumer spending power increased last month to its highest level in more than a year.

A Lloyds TSB report said rising incomes had boosted its spending power index by 4.4 per cent despite rising household costs. It was the first time spending power growth had risen above the rate of inflation since mid-2010.

Lloyds, the sister firm of Bank of Scotland, said 7 per cent fewer people rated the UK's financial and employment situations as "not at all good" - marking the second consecutive month of improvement in consumer sentiment - while the number of people who believe they will have less money in six months' time has also dropped, to the lowest level in seven months.

Experts said the figures demonstrated that there has been some recovery in the labour market, mirroring figures released earlier this week, which showed the number of people without a job had dropped in Scotland for the seventh month in a row.

The increased optimism came despite a rise in "essential" household spending, such as utility bills and food - and the spiralling cost of fuel, which has rocketed by 10.9 per cent over the past ten months - according to the report.

The increase mirrors the gradual growth since the turn of the year, following a blip in April, which saw the figure slump by almost 5 per cent.

"It is interesting to note that income growth has been the main driver of growth, indicating a recent strengthening of the labour market, rather than a fall in consumers' essential spending commitments, which continue to grow," said Patrick Foley, chief economist at Lloyds TSB.

"Looking beyond the April data that has been affected by the timing of holidays, growth in spending power appears to be back in line with the improving trend seen since the beginning of the year."

The bank's monthly Spending Power report showed that income rose by 3.9 per cent in May, compared to a year earlier - but utility bills grew by 0.9 per cent compared to the previous year.

Graham Bell, spokesman for the Scottish Chambers of Commerce, said: "There are considerable signs that we are in early stages of recovery, that things are basically positive - but we are still on an uphill struggle.

"Positive indicators are always helpful because the success of the economy is dependent on consumers having the confidence to engage with parting with their money. If they're not willing to do that, it becomes difficult for businesses to grow. However, these are very promising indicators."

The poll showed that the number of people who said they would have to draw down on their savings or increase credit card spending to help make ends meet had fallen from 27 per cent six months ago to 21 per cent in May, while the proportion of people who rated the state of their finances as bad rose from 44 per cent to 50 per cent.

"It is good to see consumers' optimism about the UK's economy filter through to personal finances despite nearly half of people thinking money is tight," added Mike Regnier, director of current accounts for Lloyds TSB.

He added: "This behaviour seems to suggest consumers are feeling the benefits of increased spending power from growing income despite essential spending having also increased."