Consumers, businesses anticipate tougher times ahead with ANZ-Roy Morgan Consumer Confidence index falling 1.8 per cent

The ANZ-Roy Morgan Consumer Confidence index fell 1.8 per cent last week to 85.9 points - well below the long-term average of 111.7 points - while the National Australia Bank Business Survey found the mood among firms improved slightly last month but remained well below average.

The gloom could weigh on spending and investment intentions, reinforcing the likelihood the economy will slow this year.

The proportion of consumers who think now is a good time to buy a major household item dropped 4.1 points and remains stuck at historically low levels, while businesses reported forward orders declined in December and are now near long-run average levels.

The Reserve Bank of Australia expects annual growth, which reached 3.6 per cent in the June quarter 2022, to drop to just 1.4 per cent by the end of this year as households cut back heavily on their spending under pressure from rising inflation and the increased cost of borrowing.

The RBA forecasts the slowdown to drive the unemployment rate up to 4 per cent by mid-2024, by which time it expects inflation to have eased to 4.2 per cent.

Nick Walshe, owner of The Runners Shop in Phillip, said there were already signs that customers were being more careful with their money.

"I am getting the impression of a little more conservatism and anxiety around the amount of money in their hip pocket," Mr Walshe said.

His store experienced a big surge in sales during the height of the pandemic as people rushed to buy sporting gear and much of that momentum carried through 2022. But sales during the Christmas and New Year period had slowed and were down around 5 per cent, Mr Walshe said.

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His experience echoes an ANZ report that found although consumers spent heavily on travel and entertainment earlier this month, spending on goods other than food fell steeply, including a 25 per cent drop in purchases of sporting and exercise equipment and a 22 per cent fall in shopping for electronics.

Evidence of a slowdown in spending will be welcomed by the RBA, which has pushed up interest rates aggressively to cool demand in the economy.

A majority of economists expect the central bank will announce a further rate hike to 3.35 per cent on February 7 but several think any further move is unnecessary and could risk tipping the economy into recession.

National Australia Bank chief economist Alan Oster said business conditions held up well through most of last year but eased significantly in December, and leading indicators like forward orders had softened.

Cost pressures have eased but remain elevated, Mr Oster said.

"Price pressures are still evident but ... price and purchase cost pressures have probably peaked," he said.

ANZ economists think there is a chance figures to be released Wednesday could show inflation dipped below 6.7 per cent in the December quarter.

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