Consumers have kept their Christmas spending sprees in check and are optimistic about the year ahead, according to a survey.
At the same time, the amount of equity that homeowners are withdrawing from their property to boost their personal finances is falling, the Bank of England said yesterday.
Nationwide Building Society said its latest consumer confidence survey had shown that four out of every five people (80 per cent) expect their family finances in 2006 to be either the same as, or better than, they were in 2005.
Such optimism may be due to the fact that family finances "appear to be fairly well under control", the country's biggest building society said.
Over half (53 per cent) of adults expect to have finished paying for Christmas by the end of this month.
But that is offset by an increase in the proportion who will still be paying for Christmas in the spring.
A quarter (25 per cent) expect to be still paying for Christmas after the end of March compared with just 19 per cent who a year ago said they expected still to be paying for Christmas in April or beyond. Only about a tenth (13 per cent) of respondents in the survey expected to pay for the majority of Christmas with a credit or store card.
The vast majority expected to pay for the festive season from their savings or from standard outgoings from their current account.
Nationwide executive director Stuart Bernau said: "It is encouraging to see that so many people are able to pay for Christmas from their savings, rather than going into debt.
"For those who have chosen to borrow money to fund Christmas, now is a good time to review how they will pay off that debt, and to check if they could get a better deal by switching their credit card, or by taking out a personal loan."
The volume of equity released from homes but not reinvested in property fell by 17 per cent in the third quarter of 2005 compared with the previous three months.
The Bank of England said mortgage equity withdrawal (MEW) dropped to £8.3 billion from an upwardly revised £10 billion in the second quarter. Compared with the same period in 2004, withdrawals were 33 per cent down from £12.4 billion.
Sharply rising house prices in the last few years have encouraged many homeowners to refinance to extract cash which economists say has helped support spending. But house price inflation has slowed sharply since the middle of 2004 to low single-digits and mortgage equity withdrawal has also weakened.
Global Insight economist Howard Archer said: "The markedly reduced mortgage equity withdrawal since its fourth-quarter 2003 peak has undoubtedly weighed down significantly on consumer spending since mid-2004.
"This reinforces our belief that consumer spending will remain relatively muted over the coming months."
Many economists believe that the Bank will cut interest rates further this year from their current 4.5 per cent - a move that will stimulate equity withdrawals in the coming months.
Others said the Q3 figures, still well above the first quarter's three and a half year low of £6.5 billion, already reflected the recent pick up in property market activity.
"The fact MEW did not fully correct the large Q2 increase supports our view that conditions in the housing market are improving and that this will, at some point, lead to increased household consumption," said Dominic Bryant at BNP Paribas.