Britons became less worried about their finances in February as inflation eased, and mortgage holders grew more confident that interest rates would stay low for quite some time, a survey showed on Monday.
The improvement in the Markit Household Finance Index survey is the latest sign that consumers are slowly regaining confidence, supporting the Bank of England's view that consumption will start growing again this year.
Households reported the lowest degree of pessimism about future finances since April 2010, survey compiler Markit said.
And the Household Finance Index rose to 38.7 in February from 36.4 in January, indicating the smallest worsening in people's current finances since December 2010, though the reading remains well below the 50 mark separating improvement from deterioration.
These positive developments meant that debt levels stabilised and households' appetite for major purchases moved back to levels not seen since the VAT (sales tax) rise in January 2011, said Markit economist Tim Moore.
Mortgage holders in particular were much less downbeat about their financial outlook, probably helped by expectations of continued low interest rates and hopes that this will keep a floor under property prices, he said.
The Bank indicated with its latest inflation forecasts last week that interest rates would not rise for quite some time.
The households' less downbeat assessment of their finances follows other surveys that showed an improvement in consumer morale as inflation fell to 3.6 percent in January, down from a three-year peak of 5.2 percent reached in September.
However, the Markit survey also highlighted the risks ahead.
Wider job market uncertainty is constraining spending even among those seeing their own situation stabilise, Moore said.
Many Britons cut back spending last year as the soaring cost of living outpaced meagre wage rises while government spending cuts and unemployment levels not seen since the mid-1990s weighed on confidence.
However, retailers recorded a surprise jump in sales in January as Britons splashed out on furniture and sports goods, in a sign the economy has avoided a renewed recession after contracting at the end of 2011 and is returning to growth.
(Reporting by Sven Egenter)