Confidence on the rise as shoppers defy bombers

Consumer confidence improved in July despite the London bombings as shoppers demonstrated defiance in the face of the first wave of the terror threat.

Research group GfK Martin Hamblin said yesterday that its index of consumer confidence improved to -1 this month from -3 in June.

This survey is the first barometer of how the London bombings have affected consumer confidence. The survey was carried out in two parts - one before the terrorist attacks on July 7 and the second part after the bombs.

Reza Chady, of GfK Martin Hamblin, said: "Interestingly the index figure was actually higher among respondents in the second wave of interviewing that the first. This is another demonstration of people's defiance over the recent events." After 9/11, US consumer demand surged.

The survey, however, does not provide any indication of whether consumer confidence remained as high after the attempted second terrorist attack.

In contrast to this boost in consumer confidence, data from the Bank of England showed consumer credit in June grew at the slowest rate in nearly four years.

The Bank said net consumer credit increased by £1.28bn last month, an annual increase of 12.5% - the weakest rise since August 2001. Credit card lending was particularly lacklustre, growing by £335m, which is the smallest increase since June 2001.

Howard Archer, chief UK economist at Global Insight, said: "Consumer credit growth was extremely weak in June, which will heighten concern that consumer spending is set to remain relatively subdued in the near term at least."

The Bank of England's monetary policy committee has its monthly meeting next week to discuss the cost of borrowing. The majority of economists think the MPC will elect to cut interest rates from their current level of 4.75%.

The decision to cut the cost of borrowing will be driven by a raft of weakening economic data: the manufacturing sector is in recession, the retail sector is struggling and the housing market is cooling.

The Bank's data showed that mortgage lending last month grew at the slowest level for more than three years. Mortgage lending in June increased by £7.5bn, an annual increase of 10.8%, the smallest rise since March 2002.

Mortgage demand appeared to be levelling out with the number of mortgage approvals for house purchase unchanged in June at 96,000, having risen for four successive months.