Consumer confidence has fallen to its lowest level since August, despite two consecutive interest rate cuts by the central bank, a private survey has found.

The Westpac/Melbourne Institute Index of Consumer Sentiment dropped by 8.3 per cent in December from 103.4 in November to 94.7 the following month.

Westpac chief economist Bill Evans said the result was surprising, and notable.

“On face value it should be a surprise that the Index has not risen following a second rate cut from the Reserve Bank (which was eventually passed on in full by the major banks to mortgage borrowers),” he said.

“However the history of previous easing cycles shows that rate cuts do not guarantee an improvement in sentiment.

“The likely explanation is that respondents’ concerns over the reasons behind the rate cut may overwhelm the perceived benefits of the cut itself.”

The Reserve Bank of Australia (RBA) cut the cash rate at its November and December board meetings, taking it from 4.75 per cent to 4.25 per cent, citing concerns about global economic growth.

Mr Evans said respondents’ sentiment seemed to reflect general worries about global economic conditions.

“The news on economic conditions, international conditions and Budget and taxation was considered the most negative since 2008/09,” he said.

Confidence amongst mortgage holders fell by 9.5 per cent, while sentiment dropped 8.3 per cent for people who own their house mortgage free, he said.

Confidence for tenants fell by 3.5 per cent.

Westpac expects the RBA to cut rates again at its next meeting on February 7.

However, the National Retailers Association (ANRA) believes the December cash rate cut should encourage consumers as they head into the Christmas season.

“The extra room in family budgets created by the cash rate cuts of November and December give breathing room to consumers and they will aim to celebrate this Christmas in good cheer,” AMRA CEO Margy Osmond said.

“What the drop (in consumer confidence) tells us is Australians remain on tenterhooks as they look to continued uncertainty in Europe and this may signal a more cautious approach to spending in early 2012.

“Most Australians will feel safe enough heading into the last week of Christmas shopping unlikely to go overboard with spending but happy to buy additional gifts to celebrate the season in style in 2011,” Ms Osmond said.

The Westpac/Melbourne Institute was conducted between December 5 and December 11.