British and US data spell likely rate cuts

UK consumers are less keen to hit the shops than at any time for three and a half years, a survey showed yesterday, raising fears that households could be about to put the brakes on their spree.

Overall consumer confidence was steady in August, according to the monthly GfK barometer prepared for the European commission - but spending intentions for the next 12 months have hit their lowest since January 1999.

After retail sales stuttered in July, the British Retail Consortium said the Bank of England should stand by to administer a confidence-boosting cut in interest rates.

However, analysts said with overall consumer optimism still well above average, the Bank's monetary policy committee was likely to leave rates on hold for a tenth month when it meets on Thursday.

"This survey adds to the likelihood, which was already high, that base rates will be left on hold at next week's MPC meeting," said Michael Saunders, an economist at Salomon Smith Barney. "The MPC have said that they stand ready to cut rates if real signs of economic weakness emerge, but no such evidence is to hand."

GfK said analysis of the survey data showed a mixed picture, with consumers increasingly confident about their own position yet more gloomy about the economic climate than at any time since September 2000.

"UK consumers seem somewhat confused, caught between worsening perceptions of the current situation and enduring optimism about the future - a condition many of us could sympathise with," said Danny Gabay, an economist at JP Morgan.

With UK consumers ambivalent about the outlook, figures from Washington yesterday confirmed that the US economy grew at an anaemic annual rate of 1.1% in the second quarter, dashing market hopes that the initial estimate would be revised upwards.

Growth slowed significantly between April and June after bouncing back to 5% in the first three months of 2002, suggesting the US recovered less strongly from last year's recession than analysts initially thought.

An unexpected 8,000 rise in the number of new claims for unemployment benefits - to 403,000 in the last week - added to the downbeat mood. The number of new claims was the highest since July 6, compounding analysts' expectations of a decline.

The detail of the output figures gave cause for optimism, however, with businesses beginning to build up stocks and raise investment spending for the first time since late 2000.

Observers will be watching for Federal Reserve chairman Alan Greenspan's comments at this weekend's annual gathering of central bankers and economists in Jackson Hole, Wyoming. The Fed left rates on hold earlier this month, but shifted its "policy bias" from neutral to positive regarding a possible cut.