UK households are spending more as the squeeze on their finances gradually easesReuters

UK households are the most optimistic about their finances in over five years, according to a closely watched monthly survey.

Research firm Markit said its household finance index hit 43.1 in April, up from March's 41.9 and the best reading since the survey of 1,500 Britons started in February 2009.

The report found that lower inflation, more available work, and an expectation that the cost of living will ease in the coming months all lifted sentiment among British households. As a result, household spending is rising.

"Easing the strain on household budgets was the slowest rise in prices paid for goods and services since the end of 2009, while future inflation expectations similarly weakened," said Jack Kennedy, senior economist at Markit.

"Although income from employment was largely static in April, strongly rising levels of workplace activity bode well for stronger pay trends in coming months.

"A long-awaited return to rising real wages is likely to boost consumer spending as we move through 2014, adding another piece to the jigsaw of the UK's economic recovery."

The Office for National Statistics (ONS) said consumer price inflation fell slightly to 1.6% during April.

Wages are rising at a rate of 1.7%, according to the ONS, meaning the real terms decline in incomes since the financial crisis has ended.

It comes as the UK economy is forecast by the International Monetary Fund (IMF) to grow by 2.9% in 2014, the fastest of any Western country.