Consumer confidence slumps to lowest level since Iraq war

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The Independent Online

Consumer confidence plunged last month to its lowest level since the Iraq war while growth in credit cards and banks slowed to an 11-year low, figures showed yesterday.

But the downturn in optimism failed to dent enthusiasm for house purchases, according to separate figures showing that mortgage approvals rose to their highest level in more than a year.

The mixed picture on the health of the consumer economy left the City split on the next move in interest rates.

A key barometer of consumer confidence unexpectedly fell to minus eight this month from minus five in September. It was the third consecutive monthly decline and the lowest since March 2003, the month of the US-led invasion of Iraq.

People's optimism on their personal finances fell to the lowest level in a year, while the index measuring whether people thought it was a good time to make major purchases was its weakest since 1999. This was echoed by figures from the Bank of England showing that growth in consumer credit, or unsecured lending, slowed to 10.9 per cent on the year, its weakest rate since 1994.

"The consumer confidence figures should be a wake-up call to anyone who believes that base rates have troughed," Michael Saunders, the European economist at Citigroup, said.

The confidence report, from the research company GfK NOP, showed that optimism about the general economic situation had fallen while fears of rising employment had worsened. Grant Montague, a divisional director at GfK, said: "We continue to see the nation in subdued mood compared to the earlier part of 2005."

Howard Archer, the UK economist at Global Insight consultancy, said that consumer spending was set to remain "muted" in the coming months.

"It is particularly alarming news for retailers as the critical Christmas period looms ever nearer," he said, adding that higher utility and council tax bills along with fear of tax rises would depress sentiment.

Meanwhile, the central bank said loans agreed for house purchase rose to 107,000 in September from a downwardly revised 106,000 in August and a 24 per cent jump a year ago. That was the highest since June last year, providing more evidence that August's first interest-rate cut in more than two years has boosted confidence after a sharp slowdown in the property market.

Michael Hume, a European economist at Lehman Brothers, said: "The approvals data are pointing to a rebound in house price inflation over the next six months."

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