Nov. 4 (Bloomberg) -- U.K. consumer confidence held at the highest level in 1 1/2 years last month as house prices recovered, Nationwide Building Society said today.

An index of sentiment was at 72 in October, the same as in September, Britain’s biggest customer-owned lender said in an e- mailed statement today. TNS questioned 1,000 people for Nationwide from Sept. 21 to Oct. 18.

Bank of England policy makers will probably decide tomorrow to increase their bond-purchase plan to 225 billion pounds ($367 billion) to combat Britain’s longest-ever recession. House prices rose 1.2 percent last month, though they have still dropped 17 percent since the 2007 peak, Lloyds Banking Group Plc’s Halifax division said yesterday.

“There does appear to be a growing belief among consumers that, while the current situation is still somewhat downbeat, the future outlook is brighter,” Martin Gahbauer, chief economist at Nationwide, said in the statement.

Service industries from insurance to computing expanded in October at the fastest pace since the start of the credit squeeze in August 2007, a separate report from Markit Economics showed today. The pound rose 0.6 percent against the dollar today, trading at $1.6541 as of 9:58 a.m. in London.

Nationwide’s gauge of consumers’ present situation rose 3 points to 22, while its measure of spending on major purchases stayed unchanged 103.

M&S Profit

Marks & Spencer Group Plc, the U.K.’s largest clothing retailer, today reported first-half profit that beat analysts’ estimates and said it made a “good start” to the third quarter, sending the shares up the most in seven months.

Still, Associated British Foods Plc, the owner of Primark clothing stores, said yesterday that it was “cautious about the outlook for the U.K. consumer over the next year.” The economy contracted 0.4 percent in the third quarter, extending the recession to a record six quarters.

Nationwide’s index showing expectations for the economy, labor market and household income over the next six months fell 2 points to 106, the report showed.

A report today by KPMG and the Recruitment and Employment Federation showed strains in the labor market eased in October. A measure of permanent job placements rose to 54.6, the highest in two years, from 51.3 the previous month.

BOE Decision

Bank of England policy makers start their two-day rate- setting meeting today, and will tomorrow keep the benchmark interest rate at a record low of 0.5 percent, according to all 60 economists in a Bloomberg News survey.

The bank will also increase its bond-purchase plan by 50 billion pounds, according to the median of 48 forecasts in a separate survey. The bank is buying assets with newly created money to lift the inflation rate, now at 1.1 percent, back to the 2 percent target.

Prices of goods in U.K. shops were unchanged in October from a year earlier after falling for two months, the British Retail Consortium said in a separate report today. Food prices rose an annual 2.5 percent while non-food prices dropped 1.3 percent. Overall, shop prices fell 0.1 percent from September.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: November 4, 2009 05:00 EST