Interest rate rises start to hit shoppers

CONSUMER confidence fell in August to its lowest level for four months as the series of interest rate rises over the last year began to hit shoppers in the pocket.

Overall sentiment - which covers the wider economic and employment situation - was down two points at 94, from 96 in the previous month, taking it to its lowest level since April.

The latest report on high street confidence from the Nationwide Building Society revealed that confidence across all measures was down, which was the first occasion this had been seen since last December.

But crucially, the component assessing the willingness among shoppers to spend money on the high street plunged from 86 to 79, which was the weakest level seen since December 2006 when it hit an all-time low of 77.

The measure on how confident shoppers think they will feel in six months' time also slipped, dropping to 92, from 96 in July.

The Scottish Retail Consortium's latest high street sales monitor for July revealed Scottish retail sales growth was at its weakest level since March 2006, with the recent poor weather cited as the main culprit.

But with life-for-like growth in July of 1.7 per cent Scotland was still marginally ahead of the rest of the UK which saw growth of just 1.2 per cent.

Nationwide's findings reveal that just 15 per cent of people think now would be a good time to buy a house or car, compared with 21 per cent this time last year, while the number of people who think it is a good time to make a smaller purchase, such as furniture or white goods, hit a new low of 39 per cent.

Nationwide said five interest rates over the past year - totalling 1.25 per cent or equivalent to around £80 a month on a £100,000 mortgage - had helped damage confidence and tightened purse strings.

The society's findings also revealed that even tougher times could lie ahead on the high street as around a third of people believe there will be fewer jobs available in six months' time, while a similar number of people also think the economy will deteriorate going forward.

That may give the Bank of England's Monetary Policy Committee food for thought as it begins its latest monthly two-day meeting to decide on interest rates today.

And although most economists believe the MPC will peg rates at 5.75 per cent tomorrow, some still see rates rising to six per cent before the end of the year as the general strength of the economy continues to hold up and manufacturing continues to recover.

Fionnuala Earley, Nationwide's chief economist, said: "The fall in each of the consumer confidence indices is not surprising given the five increases in interest rates in just a year.

"It now seems clears that consumers are taking this to heart in their spending intentions.

"Recent events such as the floods and the turmoil in the financial markets may also be having something of an impact."

On a more positive note, Nationwide found expectations for house price growth rose slightly during August, with people now expecting the cost of the average house to go up by 3.8 per cent during the coming six months.