Credit crunch crisis fails to shake consumer confidence

Consumer confidence remains high despite the credit crunch and the Northern Rock crisis, a survey shows.

Perceptions of job security hit a two-year high this month and people increasingly expect interest rates to fall, according to Lloyds TSB's Consumer Barometer survey. Of the respondents to the survey, 20 per cent thought their job was more secure than a month earlier, with 18 per cent feeling less secure.

The buoyant mood, supported by the rise in September's official employment figures, was the most optimistic result for two years, Lloyds TSB said. The survey was conducted between 14 and 16 September, when thousands of Northern Rock customers were seen queuing outside the stricken bank's branches in the first run on a British bank since 1866.

Fears about a crisis of confidence in the banking system prompted the Chancellor, Alistair Darling, to guarantee Northern Rock's deposits.

Lloyds TSB's chief economist, Trevor Williams, said: "The recipe for consumer confidence is a secure job and ability to pay the bills and, despite the credit market turmoil, we have seen increasing optimism in both these areas in September."

Respondents' expectations of an interest rate cut were at their highest since July 2006, though three-quarters still expected rates to be higher in a year.

Expectations of inflation were at a 17-month high, with 81 per cent expecting prices to be higher in a year, compared with 3 per cent who expected lower prices.

Annual inflation unexpectedly fell to 1.8 per cent last month, its lowest level since March 2006, after the Bank of England's Monetary Policy Committee raised interest rates five times to stop prices running out of control.

The Bank is concerned about the credit crunch spreading to the wider economy. The Bank's Governor, Mervyn King, said two weeks ago the Bank was monitoring borrowing costs and the economic effects of rising credit.

The MPC voted unanimously to hold rates at 5.75 per cent this month, increasing expectations that rates will fall again.

The Lloyds TSB survey questioned more than 2,000 people to track their views on key indicators of consumer confidence.