INCREASED consumer spending, a strong rand and interest-rate cuts raised the South African Chamber of Business' (Sacob) business confidence index to a record level last month , the highest business sentiment SA has seen since 1997.

Business confidence surged to 127,8 last month, up 5,3 points from 122,5 in July. Sacob said the outlook looked bright.

Sacob economist Richard Downing said yesterday the subindices of the index reflected "buoyant consumer spending", which fuelled manufacturing production and sales volumes. Eight of the 13 subindices showed improvement.

"The consumer out there is having a good time at the moment," Downing said. The business confidence index supported growth and inflation figures that came out last month, showing the lower inflation and interest-rate environment were conducive to higher consumer spending and gross domestic product (GDP).

Absa economist Karen Ford said: "The manufacturing and construction sectors are important to economic growth. Increased consumer demand coupled with positive business sentiment bodes well for the economy." Absa projected GDP growth to average 2,7% this year , up from last year's 1,9%.

Positive economic sentiment was also reflected in last month's purchasing manager's index that measured 59, unchanged from July.

The Reserve Bank cut interest rates altogether 5,5 basis points last year, and surprised the markets by lowering rates with a 0,5% basispoint cut last month.

Growth came in at 3,9% for the second quarter of this year , while consumer and producer inflation surprised the market by growing at 4,2% and 0,7% year-on-year in July respectively. Lower inflation and less debt costs also boosted household spending .

Private sector credit extension grew 6,15% year-on-year in July, from 5,86% in June. In the first half of this year , household debt was 54% to disposable income.

Sacob said yesterday the surge in the index since June last year was spurred by the initial strengthening of the rand after the currency's demise in the fourth quarter of 2001. On average, the rand recovered by 50% from December 2001 to last month against the pound, euro and dollar.

Ford said GDP growth for the first half of this year had already exceeded expectations, and was likely to remain strong provided the current low inflation and low interest rate environment persists.