Upbeat consumers ignore looming rate hike

08-11-2006

Upbeat consumers ignore looming rate hike
Consumer confidence bounced back in October despite widespread expectations of a second increase in interest rates this year, building society Nationwide has revealed.

Its latest consumer confidence index increased to 98 points last month, up nine points from September's score and showing an extremely quick recovery from the disastrous August index rating of 83.

Expectations towards the future improved by 12 points, in spite of the widespread belief that the Bank of England will increase the base rate to five per cent tomorrow. However the spending index fell by seven points, suggesting that the retail sector will continue to face gloomy market conditions this autumn.

"Consumers certainly appear more confident in jobs and the economy, but this has not translated into spending on the high street," Stuart Bernau, Nationwide's executive director, said.

"This reluctance to spend may give the MPC some comfort that inflation will not be further fuelled by a spending boom in spite of the welcome decrease in petrol prices. With all these factors for the MPC to consider, the question on everyone's lips is will they or won't they increase rates in the run-up to Christmas."

Meanwhile house prices are expected to rise by 3.9 per cent in the next six months, one per cent more than had been anticipated in September. Nationwide pointed out that a rate rise tomorrow could dampen expectations in November, however.


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