Consumer confidence hit by June hike

04-07-2007

Consumer confidence hit by June hike
Consumers' optimism has been hit by widespread expectations of a further rise in interest rates this month, Nationwide says.

The bank's monthly consumer confidence index has dropped four points from its 18-month high in May, which reflected a wider buoyant mood on the high street for both retailers and shoppers alike.

Its overall index fell back to 95, as did the expectations index which is down to 93 points. Only the spending index improved on June's figures, up two points from 84 to 86.

Concerns about both employment prospects and the wider economy fuelled the drop in confidence, the first since December 2006, Nationwide's chief economist Fionnuala Earley said.

"Higher interest rates are likely to be a major factor behind this as consumers recognise their impact on the wider economy as well as on their own pockets," she explained.

"It now seems likely that rates will rise in July with a significant risk of a further increase in the autumn and we expect to see consumers tightening their belts in the months to come."

Members of the Bank of England's monetary policy committee narrowly voted against a hike in June and are widely expected to raise rates from its current 5.5 per cent level in tomorrow's decision.

Consumer price index (CPI) inflation currently stands at 2.5 per cent but upward inflationary pressures remain strong. These are expected to subside by the end of the year, however.


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