By Daniel Hunter

The Lloyds TSB Spending Power Report for June reveals that confidence continued to improve during the month as the Consumer Sentiment Index reached its highest level on record (since November 2010) at 112 points.

Confidence is now 10 points higher than at the end of 2012 and 22 points higher than the historic low of 90 points seen in March 2011.

Continuing the trend seen in recent months, it is greater optimism towards the UK’s current economic situation that is the key driver of improved sentiment in June. At the same time, there are positive signs that confidence about the housing market and employment situation is slowly returning, albeit rising from subdued levels. Further details can be found below.

Alongside improving sentiment, households may also take comfort from greater stability in their essential spending. Annual spending growth on essential items, at around 21⁄2%, has remained fairly constant since the turn of the year and is currently broadly in line with the rate of inflation on those items. A more stable environment, with fewer unexpected pressures on essential spending, in turn improves households’ capacity for non-essential spending.

Pockets of pressure remain, however, with spending growth on gas and electricity bills continuing to trend upwards in June, climbing to nearly 9%. When asked about increased spending on utility bills, consumer research shows 69% of consumers say they are now spending more or a lot more compared with this time last year, while 78% are concerned about increasing utility prices. Similarly, 74% are concerned about the rising cost of food. However, with annual growth in spending on food and drink recently easing to around 21%, reduced pressure from food bills may gradually allay household concerns.

Consumer concerns towards the UK’s financial situation continues to decrease, with the number of people saying it is ‘not at all good’ falling by two percentage points from 41% in May to 39% in June. On a UK level, this measure has now fallen by eight percentage points since March (47%). Regionally, those living in the North of the UK continue to have the least positive view, with those saying it is ‘not at all good’ remaining at 45% for the second consecutive month.

Similarly, the number of those who state the housing market to be ‘not good’ or ‘not at all good’ fell back during the month, receding by two percentage points to 69%. This compares with 27% who believe it to be ‘somewhat good’ — its highest level reached since the study began in November 2010. Pessimism towards the housing market remains strongest in the North of the UK where 76% feel it is ‘not good’ or ‘not at all good’.

Meanwhile, confidence regarding the employment situation bounced back slightly from the dip seen in May, but remains downbeat. 83% of respondents described the employment situation as ‘not good’ or ‘not at all good’ in June, compared with 87% the month before. Females are the most pessimistic with 87% feeling this way.

There was no change in consumer sentiment towards their own personal finances in June, which remained steady at 54% stating they are ‘excellent’, ‘very good’ or ‘somewhat good’. The 25-34 year old age group continues to have the most positive outlook on their personal finances with 60% stating they are ‘excellent’, ‘very good’ or ‘somewhat good’, compared with 46% of 45-54 year olds who remain the most subdued.

People’s optimism towards their own financial situation has also translated into a greater proportion saying that they will save more if they have money left over at the end of the month in June, reaching a historical peak of 66% (56% in May). Similarly, 56% said they would be likely to spend any leftover money on leisure activities (up from 44% in May), and 45% would spend more on non-essential purchases (up from 40% in May).