Photographer: Matthew Lloyd/Bloomberg

What's Making U.K. Consumers So Confident?

Money in your pocket means a lot

Brits haven't had it this good since before the financial crisis and they know it.

Consumer confidence has been rising in tandem with improving spending power; wages are rising at an annual rate of close to 3 percent and prices fell in September. Food costs -- a big essential weekly outflow -- have fallen for 15 straight months, leaving pockets a little heavier than in the recent past.

And that's not all. The Asda income tracker, produced by the supermarket chain and the Centre for Economics and Business Research, shows net pay after tax and spending on essentials such as food, housing and energy, is at the highest level since at least 2008. That's given confidence an extra boost, according to Sam Hill, an economist at RBC Capital Markets in London.

Photographer: Charlton, Emma

``It is not just growth in gross pay that matters," Hill said. ``Spending power has really benefited from prices falling for many essential household goods. This appears to have left U.K. households with a much more optimistic perspective.''

And that bodes well for retailers. Data on Thursday is forecast to show sales volumes excluding petrol rose 0.4 percent in August, a third consecutive monthly advance.

A note of caution, however; there are other factors are at play. Home Retail Group Plc said Wednesday that earnings will miss estimates because of the prospect of increased discounting on Black Friday. That's the traditional American start to the holiday shopping season, but it's being embraced more widely in the U.K. now.

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