By Claire West

UK consumer sentiment is at its strongest level since the third quarter of 2011, according to the latest Deloitte Consumer Tracker.

Concerns around the level of disposable income have eased by 10 points in the last year, from 43% in Q3 2011 to 33% in Q3 2012 and consumers are more positive about their levels of debt, down to 10% from 16% compared to the same period in 2011.

Consumer confidence around job security has helped to underpin the improved sentiment.

Fewer households (14%) experienced some reduction or loss of income in the last quarter, compared to a year ago (19%). In addition, the proportion of people claiming that someone in their household has started a new job was also at its highest level this year at 10%.

Of those consumers who reported spending less this quarter to manage their outgoings, their defensive behaviour has lessened. Trading down has dropped to 27% of those consumers from 40% a year ago, bargain hunting has fallen from 26% to 17%, and simply buying less is down from 25% to 19%. But consumers remain cautious and there are no signs of them going on a spending spree as yet.

Ian Stewart, chief economist at Deloitte, explains: “The Consumer Tracker points to a reduction in the stress on the household, with consumers more positive about their income, employment and working hard to balance the books by reducing their levels of debt. These shifts in consumer behaviour tie in with the official data that highlights a general improvement in the consumer market.

“However, this brighter outlook is tempered with caution as there is no evidence yet of a significant loosening of the purse strings. The real test is when we will see a pronounced shift towards greater discretionary spending, especially on big ticket items such as holidays and white goods, and consumers trading up. This will be key to whether we see continued growth in consumer spending in 2013.”

Looking ahead to next year, consumers are concerned about rising prices. A majority anticipate higher grocery prices (78%), while 59% expect their spending on utilities to increase and 42% expect their transport costs to go up. By contrast, levels of debt will continue to improve as the number of people thinking their debt level will decrease (22%) is higher than those expecting an increase (16%).

Ben Perkins, head of consumer business research at Deloitte, comments: “While UK consumers are experiencing an increase in real household disposable income, a cautious mindset prevails; we have yet to reach the turning point where defensive behaviours switch to more expansionary ones. However, there are signs of an upturn in consumer activity which should lend significant support to UK growth next year.”