In another volatile reading, the Westpac Melbourne Institute of Consumer Sentiment fell 8.3% to 93.7 in December, meaning pessimism outranks optimism.
This follows the consumer sentiment survey reaching a 103.4 last month after the November rate cut.
Westpac senior economist Matthew Hassan says the size of the fall is larger than expected, but a reflection that "consumers are being pulled in different directions".
"If you look around at what is likely to have driven it, Europe was very much a concern and the data was very much mixed," Hassan tells SmartCompany.
He adds that December's rate reduction was largely expected, so it did not generate the same positive reaction as the cut on Melbourne Cup Day.
Hassan believes consumers were mostly concerned with the rise in unemployment to 5.3%, with 40,000 full-time jobs lost at last count.
Despite noting that it is not a foregone conclusion that a rate cut necessarily results in a rise in sentiment, Westpac continues to call for February reduction and another still next year.
And unlike National Australia Bank, which expects the unemployment rate to fall to 4.8% due to Australia's high terms of trade, Westpac believes that unemployment will edge higher through 2012 to 5.7% – meaning further weakness in consumer sentiment is likely.
Four of the five components of the index fell in December, with the index tracking views on "economic conditions over the next 12 months" slumping 19.4%.
Respondents were similarly downbeat about the five-year economic outlook, with that index diving 14.4%.
In positive news, however, the index tracking expectations for family finances over the next 12 months was up 3%.
The survey shows that the desire to pay down debt continues, with 26.6% saying it was the "wisest place for savings", up from 18.6% the previous month.
The percentage is the second-highest ever recorded since it started being measured in 1997 – the highest was recorded during the global financial crisis.
The survey also found that just 6.6% of respondents nominated equities as the wisest place for savings, the lowest percentage since 1993.
Real estate was also out of favour, with just 14% of respondents nominating real estate – apart from 2008, this was the lowest reading since the survey began in 1974, the bank said.
The index tracking views on "time to buy a house" fell by 1.9% and the index tracking views on "time to buy a car" was down 1%.
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