By Claire West

As we enter into a period of increased consumer spending while people get ready for the run up to Christmas, the Lloyds TSB Spending Power Report reveals that people had the same amount of money left over at the end of the month to spend on discretionary items in October as they did a year earlier.

Therefore, despite inflation receding throughout much of this year, consumers are yet to see this fully translate by way of more pounds in their pockets once essential spending has been accounted for.

October's data follows a period of relatively weak income growth in real terms, whereby inflation has kept pace with the moderate increases in income.

Spending on essential items continues to grow annually by 3.2%, in line with the consistent pattern seen in recent months. Food and drink, the largest component within essential spending, displayed the highest growth year-on-year at 7.0%, while annual spending growth on automotive fuel crept up to 3.3% as prices at the pump continue to steadily rise. Meanwhile, annual spending growth on gas and electricity bills continued to decline and stood at 6.1% in October. This measure is, however, likely to see growth return to higher levels in the coming months as a number of UK energy suppliers prepare to introduce increases to the prices charged to customers.

While households remain squeezed, consumer sentiment towards their household's financial situation continued to improve in October. Over the past 12 months there has now been a four percentage point decrease amongst consumers who feel that money is tight or who do not have enough to meet their outgoings.

Patrick Foley, chief economist at Lloyds TSB, says:

"Consumers remained under pressure in October as income growth is barely above inflation. Looking forward, the pick up in automotive fuel and food spending, reflecting recent price rises, suggest that the squeeze may continue until income growth improves."

Consumer Sentiment: Current situation

Sentiment towards the UK's economic situation remained relatively stable during October. The proportion who felt the country's situation was ‘not at all good' marginally decreased by two percentage points to 43%, falling back towards levels seen in August. This continues the year-on-year trend, which shows sentiment continuing to improve, with October displaying a nine percentage point decrease in the proportion of people perceiving the situation to be ‘not at all good' from a year earlier.

Views relating to personal finances remain identical to September with around half (51%) viewing their personal financial situation to be good or excellent. Again, year-on-year there has been an improvement, with a four percentage point decrease in those stating it is ‘not at all good' and ‘not good'. This decrease continues to be driven by younger and older age groups (18-34 and 55+) feeling more positive than those in middle age.

In line with positive employment figures in recent months, perceptions of the UK's employment situation continue to improve with a four point reduction of those stating prospects are ‘not at all good' or ‘not good' from September to October 2012. This is the highest level of positivity seen since November 2010.

Consumer Sentiment: Future situation

Attitudes towards future discretionary income in October reversed the trend of growing optimism seen in recent months, with the balance of opinion (the difference between those saying they will have more minus those saying they will have less in six months time) falling to -9% from -3% in September. This change is being driven by the older age groups (45 years and over) where on average around a third state they will have ‘less' or ‘much less' money available.

Similarly, the balance of opinion with regard to saving (the difference between those saying they will save more minus those saying they will save less) decreased by three percentage points to 2% in October, reaching its lowest level since May 2012.