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UK consumer confidence 'slumps' Economy blues boost rate-cut call
(about 3 hours later)
UK consumer confidence has seen its biggest decline in three years during November because of higher interest rates and prices, a report says. The Bank of England is coming under increased pressure to cut interest rates as more evidence emerges that economic conditions may be worsening.
Mortgage lender Nationwide said its gauge of consumer confidence fell by 12 points to 86 last month, the biggest drop since the survey started in 2004. The Bank is due to start a two-day rate setting meeting and will announce its decision at midday on Thursday.
The figures will underline concerns about the state of the UK economy and amplify calls for an interest rate cut. Many observers are now calling for the Bank to cut rates to 5.5% from 5.75% to help shore up demand in the housing and retail markets.
Consumer spending is one of the main drivers of the UK's economic growth. Surveys have shown falling house prices and a slump in consumer confidence.
In the past week, a number of companies have said that they are seeing a slowdown in demand on the High Street. Consumer demand is one of the main drivers of the UK's economic growth, while rising house prices have been the main factor underpinning a "feel-good factor" that has allowed shoppers to keep spending.
At the same time, financial industry experts have warned about the continuing impact of problems in the US housing market, which have triggered a global credit crunch and problems at UK lender Northern Rock. Uncertainty about the effects of the credit crunch together with rising oil and food prices seem to be affecting feelings about jobs and the future economic situation Fionnuala Earley, Nationwide chief economist
However, the economic environment that allowed many consumers to borrow money cheaply, remortgage quickly and run up large debts now seems to have changed, with much stricter rules being applied.
Financial industry experts are now warning that tougher times lie ahead because of the continuing impact of problems in the US housing market, which triggered a global credit crunch and are rippling out across the globe.
Future gazing
Already the effects are becoming more evident in the UK, with an increase in the number of mortgage arrears and problems at lenders, not least Northern Rock, which may be taken over.
On Wednesday, Halifax reported that UK house prices dropped 1.1% in November as higher interest rates and increased mortgage repayment costs took their toll.
According to the lender, last month's decline took the annual rate of growth to 6.3%, compared with 8.9% in October. It now calculates that the average residential property across the UK now costs £194,895.
At the same time, a report from rival lender Nationwide showed that its measure of consumer confidence had seen the biggest monthly decline since the survey began in 2004.
Nationwide said its gauge of consumer confidence fell by 12 points to 86 last month, and was also the result of higher interest rates and an increase in the cost of key products such as petrol.
In the past week, a number of companies, including menswear retailer and rental company Moss Bros, have said that they are seeing a slowdown in demand on the High Street.
"Uncertainty about the effects of the credit crunch together with rising oil and food prices seem to be affecting feelings about jobs and the future economic situation," said Fionnuala Earley, Nationwide's chief economist."Uncertainty about the effects of the credit crunch together with rising oil and food prices seem to be affecting feelings about jobs and the future economic situation," said Fionnuala Earley, Nationwide's chief economist.
The Bank of England is due to give its latest interest rate decision on Thursday, and some analysts are predicting that it will cut borrowing costs by a quarter of a percentage point to help shore up the economy. Time to move
The Daily Telegraph said that former members of the Bank's rate setting Monetary Policy Committee Willem Buiter and Sushil Wadhwani were among those calling for borrowing costs to fall from their current level of 5.75%. While many analysts are now trying to work out if the negative economic data and reports point to a more severe slowdown in the UK economy next year than was earlier predicted, others have already made up their minds.
The Daily Telegraph said that former members of the Bank's rate setting Monetary Policy Committee, Willem Buiter and Sushil Wadhwani, were among those calling for borrowing costs to fall from their current level of 5.75%.
Business people have also been calling for action, warning that consumers were becoming more cautious about how and what they were spending.
On Tuesday, Tesco's finance director Andrew Higginson called on the Bank to "move decisively to take interest rates down".
And it is not just in the UK that problems are emerging.
The strength of the pound against the dollar may also make it harder for firms to compete against foreign rivals and export goods.