There are possible hopes that consumer confidence may jump back up by the end of the year after the Westpac Melbourne Institute Index of Consumer Sentiment rose by 1.6 per cent in September from 96.6 in August to 98.2 in September.

Westpac's chief economist Bill Evans said despite this slight increase the consumer sentiment remains weak, with this being the seventh consecutive month that the Index has been below 100.

“The consumer is clearly stuck in an extended ‘cautiously pessimistic’ phase. In September last year the Index printed 96.9 so it has only increased by 1.3 per cent over the whole year,” he said.

“That is despite 125bps of rate cuts from the Reserve Bank; a more or less steady unemployment rate which is close to full employment; and some recent positive news around the threatening European situation

“This does not bode well for consumer spending and is consistent with the slowdown in consumer spending indicated by the June quarter national accounts.

Although this followed a strong March quarter rise, the softening has come despite major policy boosts to household incomes including $1.9bn in fiscal handouts. With a sharp fall in July retail sales confirming this boost is now reversing, underlying momentum appears to be soft, in line with the consistently downbeat signal from the Consumer Sentiment Index.”

From this, Westpac has forecasted the Reserve Bank will cut the official rate by 50 base points over two meetings before the end of the year.