Crumbling confidence leads to call for rate cut

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The Independent Online

Confidence among British households has crumbled to its lowest level this year, according to a new survey that will boost arguments for another cut in interest rates.

Confidence among British households has crumbled to its lowest level this year, according to a new survey that will boost arguments for another cut in interest rates.

But there was little sign this growing sense of gloom would trigger an end to the high street boom as consumers appeared intent on spending.

The fall was not as severe as last Thursday's fall in US confidence to a nine-year low, which prompted Wall Street economists to claim a rate cut by the Federal Reserve next week was a "done deal".

George Buckley, UK economist at Deutsche Bank in London, said a cut in UK rates remained "possible". He said: "This is certainly a weaker report but by no means as troubling as [Thursday's] figures in the US."

The consumer confidence index, part of a Europe-wide survey carried out by analysts Martin Hamblin GfK, fell to plus one this month, its lowest since December, from plus four in September. All five of its components fell, with the most marked decline in people's outlook for the general economic situation.

Almost half the 2,000 people who took part in the poll said they believed the economic situation had worsened over the past 12 months. Their current and future perceptions of their personal finances fell, but to a much lesser degree, while the outlook for the future path of the economy also worsened.

Roger Wright, a director of GfK, said: "It is a reflection of a generally pessimistic outlook for the British economic climate. Stock markets have been losing their value, both here and in other countries."

There was a slight fall in people's readiness to make a major purchase, although the index was higher than a year ago. The number of people who believe it is a good time to save is at an all-time low.

Among the City analysts' community, the fall in confidence was further ammunition for those who believe there will be a cut next week, but dismissed as neutral by those who are predicting no change.

Meanwhile PricewaterhouseCoopers, the accountancy firm, weighed into the debate over the state of the public finances. It said the Chancellor, Gordon Brown, looked set to meet his fiscal rules despite an increase in deficits, meaning there was no need for an imminent tax hike.

But it warned that the Government would have to impose an £8bn tax increase – equivalent to 3p on income tax – in 2006 to make the books balance.

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