CANBERRA, AAP – Confidence among Australians has been undermined by continually high COVID-19 infections in the past week, even as vaccination rates speed up.

The weekly ANZ-Roy Morgan consumer index – a pointer to future household spending – fell 1.8 per cent.

ANZ head of Australian economics David Plank said the fall came despite reasonably good news on the economy last week.

The national accounts posted a 0.7 per cent economic expansion in the June quarter, avoiding the immediate threat of a recession.

Confidence dropped 5.3 per cent in Sydney and 0.8 per cent in Melbourne, the nation’s two largest cities that are enduring lengthy virus lockdowns.

Australia’s services sector has also taken a hit from these lockdowns in a further sign the economy will take a major hit in the September quarter.

The Australian Industry Group performance of services index fell 6.1 per cent to 45.6 in August and its lowest level since September 2020.

An index reading below 50 points indicates the sector is in contraction.

“Increased COVID-19 cases and the lockdowns aimed at constraining the spread of the virus saw the performance of the services sector slump in August,” Ai Group chief executive Innes Willox said on Tuesday.

The decline was driven by a sharp fall in sales, fewer deliveries and a drop in new orders.

“With lockdowns in Victoria, the ACT and NSW set to continue this month and with new orders down on previous levels, the immediate outlook is for another weak month or two,” Mr Willox said.

These reports came as the Reserve Bank of Australia holds its monthly board meeting and is now faced with a rapidly deteriorating outlook.

Economists now expect the economy could contract by as much as four per cent in the September quarter due to the impact of lockdowns.

The RBA is widely expected to keep the cash rate cemented at a record low 0.1 per cent.

Economists are debating whether to expect changes to the central bank’s bond buying program, which aims to keep market interest rates and borrowing costs low.

The RBA announced earlier this year it would wind back its weekly buying to $4 billion from $5 billion from September faced with an economy at the time that was proving to be much stronger than expected.

Some economists believe it will now delay this winding back, or so-called tapering, in the face of the renewed downturn, while others think it will stick to the plan in anticipation of the economy bouncing back quickly.

Economists will also be looking for any signs of change in the RBA’s forward interest rate guidance given a more uncertain outlook.

The RBA wants to see inflation sustainably within its two to three per cent inflation target, which will need the unemployment rate to fall to four per cent and wages growth of at least three per cent.

It does not expect these conditions to be met before 2024.