CANBERRA, AAP – The prospect of higher interest rates this year has undermined confidence, just when consumers appeared to be getting back on their feet after the shock of the highly infectious COVID-19 Omicron variant.

The weekly ANZ-Roy Morgan consumer confidence index – a pointer to future household spending – fell 1.9 per cent in the past week, reversing the gains of the week before.

The fall coincides with the much publicised commentary from the Reserve Bank governor Philip Lowe that there was now a “plausible scenario” in which the cash rate increases in 2022.

“That is a big shift from Lowe’s previous statements that interest rates may not go up until 2024,” ANZ head of Australian economics David Plank said.

The survey found respondents views on their current financial conditions plunging 7.8 per cent, while future conditions were down 3.5 per cent.

Both sub-indices fell to their lowest levels since late 2020 when the economy was recovering from the second wave of the pandemic.

Western Australia suffered the biggest fall in confidence, dropping 8.1 per cent due to relatively high COVID-19 infections and bushfires in the state.

However, separate data showed early signs that the impact from Omicron variant on spending could be short-lived after taking a hit in late December and into January.

The Commonwealth Bank household spending intentions index fell 10 per cent to 103.8 in January, with Omicron likely accounting for a meaningful share of this drop.

The index combines an analysis of CBA payments data, loan applications and publicly available search activity on Google Trends.

“It is no surprise that spending intentions fell more than normal in January due to the spread of Omicron, with the biggest declines seen in the retail, entertainment and household services sectors,” CBA chief economist Stephen Halmarick said.

However, the bank’s latest credit and debit card data for the week ending February 4 shows a broad-based pick up in spending growth, suggesting consumer spending likely troughed in early January and has been steadily improving since.

“We continue to expect the Australian economy to grow by close to five per cent in 2022,” Mr Halmarick said.

Meanwhile, National Australia Bank will release its monthly business survey for January later on Tuesday.

In December, business confidence – a guide to future investment and hiring – slumped as Omicron emerged in late in 2021, falling to a level below that seen at the beginning of the Delta strain lockdowns.

Business conditions, however, held relatively steady.