Rate cut unlikely to affect spending

Even after the Bank of England acceded to the growing calls to lower interest rates last week, observers fear that the move won't provide a big enough fillip for consumer confidence.

According to one analyst at Capital Economics, factors such as household debt and rising unemployment could seriously reduce lower interest rates' power to boost consumer spending.

Capital Economics UK economist Vicky Redwood said: 'With the housing market so overvalued, lower interest rates might not eliminate fears of a substantial correction in values. Overall, lower interest rates are unlikely to prompt any immediate resurgence in consumer spending. As such, we think that the Monetary Policy Committee will need to work harder than most people are expecting in order to support spending.'

Redwood forecast that spending will rise by 1.5 per cent over the next 18 months.