Terrorism fear may hit spending

RISING interest rates and terrorist fears have combined to depress consumers, making them fearful for the future, figures due on Thursday are expected to show.

The monthly consumer confidence index, which has been negative for nearly a year, could drop further in the wake of the Bank of England's quarter-point rise in interest rates, announced on November 6.

And worse could be on the way - this month's survey ended last Tuesday, 48 hours before terrorist bombs blew apart British targets in Istanbul.

'Fears of a domestic attack will hold the index in check,' said Peter Dixon, analyst at Commerzbank. 'Given that both unemployment and inflation are very low, it is remarkable that the index is not more buoyant than it is.'

Figures from retail group John Lewis highlight the part played

by security fears in dampening consumer activity. While sales in cash terms across the group as a whole are 1.5% up on a year ago, sales at its flagship Oxford Street store are four% lower.

Retail operations director Gareth Thomas said: 'This is the impact of security fears, along with an element of fall-out from the congestion charge.'

The index, published monthly by research group Martin Hamblin GfK, scores confidence either side of zero, at which level the consumer is neither depressed nor upbeat. It stood at minus three in each of the months August, September and October, and some forecast it will sink further.

Ross Walker, economist at Royal Bank of Scotland, said: 'We expect that to worsen to minus five this month. The interest rate rise has come on top of April's tax increases - people are latching on to the fact that they have less money to spend.'