UK consumers may be happy but they still won't spend

Consumer confidence in the U.K. grew five times faster than the global rate last year but, despite a wider backdrop of falling prices, shoppers are more reluctant to spend, research shows.

The U.K. Consumer Confidence Index hit 94 at the end of 2014, according to data published by information specialist Nielsen Tuesday, 10 points higher than at the end of 2013 and the highest level in over eight years.

Over the same period, consumer confidence around the world increased by just 2 points (to 96) while across Europe confidence increased 3 points (to 76). The U.K. was one of just 11 countries out of 60 around the world that reported double-digit confidence increases last year, Nielsen said.

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The U.K. data was derived from Nielsen's global survey of consumer confidence and spending intentions which was started in 2005. The index measures attitudes on topics including personal finances and job prospects each quarter among 30,000 internet consumers in 60 countries.

However, despite a rise in consumer confidence, U.K. shoppers were still reluctant to part with their cash, Neilsen found – a potential worry for an economy reliant on consumer spending.

This prudence on the behalf of of U.K. consumers comes in spite of a time of robust growth in the U.K. economy. Between the fourth quarter of 2013 and the same period last year, more Britons were feeling positive about their job prospects and the U.K. economy, the index showed.

"Although consumer confidence is back to pre-2008 financial crisis levels, with economic indicators improving and people feeling more confident about job prospects, the British shopper is still reluctant or unable to spend," Nielsen's U.K. head of retailer and business insights, Mike Watkins, said of the findings.

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"Most households continue to change their spending to save on household expenses. A quarter of shoppers also claim not to have any spare cash, a constant percentage since the end of the recession. Among those who do have spare cash, almost half would put it into savings, whilst nearly a third will pay off debts."

It's perhaps no surprise, given the recent spate of positive growth and employment data that has set the U.K. apart from its euro zone neighbors and the deflation-hit region.

According to preliminary data from Office of National Statistics (ONS) published last week, Britain's gross domestic product (GDP) expanded 2.6 percent in the fourth quarter, year-on-year, the strongest annual growth since 2007. Unemployment, meanwhile, fell to its lowest level in more than six years in the three months to November, hitting 5.8 percent.

Falling levels of inflation in the U.K. have been attributed to the decline in the global price of oil – down around 60 percent since June 2014 – and the competition between the U.K.'s biggest retailers. In their attempt to keep up with high-street discounters like Aldi and Lidl, the biggest supermarkets have entered a "price war" in which the prices of everyday goods are being slashed.

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Watkins said that the most significant change to spending intentions was the increase in households switching to cheaper grocery brands to save money – rising from 37 percent in the fourth quarter of 2013 to 45 percent in the fourth quarter a year later.

"With the discounters now having a 10 percent share of grocery sales and supermarkets lowering prices, it looks like shoppers will habitually continue to spend less on groceries, even when their personal finances improve."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld