Consumer sentiment increased by 0.8 per cent in May from 94.5 in April to 95.3, according to the Westpac Melbourne Institute Index of Consumer Sentiment.

Bill Evans, Westpac chief economist, described the results as “disappointing”, particularly following a surprise 0.5 per cent cut in the official cash rate by the Reserve Bank, as well as reports that the unemployment rate had fallen from 5.2 per cent to 4.9 per cent.

“However, other factors appear to have offset these positives. Firstly there might have been a degree of disappointment amongst households that the standard variable mortgage rate was reduced by ‘only’ an average of 0.37 per cent . Secondly, increasingly disturbing news around Europe and specifically Greece is likely to have unnerved households,” he says.

According to the NAB, the soft response in confidence will be a disappointment for the Reserve Bank.

“An additional explanation for this weak response of the Index is around the Federal Budget. We asked a supplementary question in the survey, "What impact do you expect the Federal Budget to have on your family finances over the next 12 months?" The results were disappointing with only 9.9 per cent of respondents indicating that the Budget would ‘improve’ family finances while 36 per cent indicated the Budget would ‘worsen’ family finances,” Evans says.

“Around 50 per cent expected no change and 4 per cent, ’did not know’. It appears that the Budget was not a positive for Confidence but this result must be assessed in the light of previous Budgets.”

NAB says there is “ample scope for further rate cuts”.

“It is our current view that the Bank will wait until July before it cuts again but developments overseas along with today’s evidence that the recent cut has had little impact on

“Confidence could easily see the Bank bring that decision forward to the next Board meeting in June,” Evans said.