Consumers' confidence in their financial situation is at its most positive level in over three years, prompting predictions that people will become more willing to splash out on luxuries in the coming months, a report has found.
Lloyds Bank's "spending power" report said its measure of consumer sentiment reached 136 points in March, which is a new series high since records began in November 2010, as more people start to feel "in control" of their money as the pressure on their wallets falls back and they find themselves in a better position to pay off their debt.
An overall balance of 5% more people think they will have more money to spend on discretionary items in the next six months rather than less, up from a 2% balance in February and minus 9% a year ago.
People living in the North East have the most positive net balance of opinion for future discretionary income at 13%, followed by those living in London at 12%.
Patrick Foley, chief economist at Lloyds Bank, said the wider improvements in the economy are likely to spur more people on to spend on non-essential items.
He said: "As pressure on consumer wallets from essential spending continues to ease, both the willingness and capacity to undertake discretionary spending is likely to rise in the months ahead."
The report found that annual growth in consumer spending on gas and electricity bills has slowed to 3%, while food spending has also eased and spending on fuel is around 4% lower than it was a year ago.
It also suggested that as living costs ease, people are becoming more confident about being able to clear their debts, with an overall balance of 9% of people feeling positive about paying off what they owe in the future, which is up by three percentage points on February.
The findings come after the Office for National Statistics (ONS) said last week that the Consumer Prices Index (CPI) rate of inflation dropped to a four-year low of 1.6% in March.
Lloyds found that households' sentiment towards the housing market and employment is continuing to improve.
The balance of people who think the employment situation is good or excellent versus those who are downbeat rose by five percentage points compared with the previous month, although the overall figure is still negative, at minus 36%.
Londoners are the least downbeat about the jobs market, with an overall balance of minus 16%, while people in the North East have the most negative view, at minus 61%. People living in Northern Ireland have seen the biggest improvement in the employment situation over the last year, with the negative balance there dropping from minus 60% in March 2013 to minus 18%, the research found.
Sentiment towards the housing market is also edging towards becoming positive overall, with the balance of opinion between those who are positive about the market versus those who are negative climbing to minus 8%, which is a 44 percentage point increase compared with a year ago.
Northern Ireland, where house prices are only just starting to recover from the financial crisis, continues to hold the most negative view about the housing market, with the balance of opinion of people there who are positive about it versus those who are negative standing at minus 32%.
Philip Robinson, director of personal current accounts at Lloyds, said: "With spending growth on essential items easing overall, we are starting to see the rewards with consumer sentiment towards housing, employment, personal finance and the country's financial situation all increasing.
"This in turn should help see a steady increase in future discretionary income as we are already starting to see the rise in those able to pay off debt. Looking towards the next six months, we hope this swing will be even more pronounced, helping consumers to feel more in control of their finances."
The report asks more than 2,000 consumers every month about their current and future spending habits.