Plunge in consumer confidence triggers fresh calls for interest rate cut in US

American consumer confidence ­ the lone prop for the US economy for several months ­ has collapsed to its lowest level in nine years, an authoritative survey revealed yesterday.

American consumer confidence ­ the lone prop for the US economy for several months ­ has collapsed to its lowest level in nine years, an authoritative survey revealed yesterday.

The scale of the fall was far greater than had been expected. It triggered a major sell-off in all major Western financial markets and boosted calls for a significant cut in interest rates by the Federal Reserve Board.

Stocks fell on both sides of the Atlantic and in London the FTSE 100 index slumped 3.5 per cent to close below the psychologically important 4,000 mark.

A poll of 5,000 US households by the Conference Board showed that confidence in October fell to its lowest level since November 1993.

Consumers' views of their current situation, the immediate outlook and the state of the labour market all fell.

Lynn Franco, the director of the board's consumer research centre, said confidence had been hit by the weak jobs market, threat of a war with Iraq and the prolonged slump in stock prices. Analysts added the terror caused by Washington's serial sniper to the list.

"The outlook for the holiday retail season is now fairly bleak," she said. "Without the likelihood of a pick-up in consumer spending, an already weak economic recovery could weaken further."

The survey comes in the wake of a downbeat Beige Book, the report from the regional reserve banks, and a marked collapse in orders for durable goods.

For many economists this was enough evidence for the Fed to cut rates when it meets on 6 November. Catherine Lee-Saunders, at Credit Agricole Asset Management, said it should cut by a half-point to 1.25 per cent. "Given the poor run of data there is nothing to be gained by waiting until December," she said.

But others were keen to wait for figures on GDP growth, manufacturing activity in October and the labour market, all of which fall between now and next Wednesday.

Steve Ricchiuto, the chief US economist at ABN Amro, said: "What people say versus what people do are two very different things. In October people bought a hell of a lot of houses and a heck of a lot of cars."

In contrast, figures later today are expected to show that Britons' confidence has held over the last four weeks.

Yesterday, the Bank of England said personal borrowing rose by £8.91bn in September from £8.79bn in August ­ the largest increase since modern records began in 1993.

Mortgage lending reached another record of £6.88bn, while new mortgage agreements rose to another record of £20.7bn.

Meanwhile consumer credit ­ borrowing on plastic, hire purchase and bank loans ­ rose by another £2bn, just behind August's record £2.1bn.

The strength of consumers' demand for debt appeared to contradict tentative signs of a housing market slowdown.

Analysts said the increase in activity would probably be reflected in another sharp rise in house prices in the Nationwide index published tomorrow.