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Last Updated: Monday, 18 December 2006, 09:58 GMT
Consumers gripped by rate fears
Brent Cross shopping centre
Are interest rate fear affecting retail spending?
Consumers are more concerned about the prospect of interest rate rises than at any time since November 2004, a survey from Lloyds TSB suggests.

Eight out of 10 people surveyed said they expected interest rates will be higher in twelve months time than now.

Just 4% of people said they expected interest rates to fall next year.

The Bank of England (BoE) has raised interest rates twice since the summer, slowing spending in shops in the run up to Christmas analysts have said.

"Rate rises have obviously dampened consumer optimism... despite the bank rate holding at 5% this month, consumers are expecting the gloom to continue well into 2007," Trevor Williams, Lloyds TSB chief economist, said.

Spending warnings

Some retailers and analysts have warned that rising interest rates is having an effect on consumer spending.

Retailers such as Debenhams and Woolworths have warned of a tough festive season ahead and some analysts worry shops catering for the mid-market may suffer the worst Christmas for 25 years.

But the Office for National Statistics (ONS) noted that retail spending rose faster than forecast in November.

Consumer fears over future rate rises may not come to fruition, according to Mr Williams.

"The widely held belief that rates are on an upward spiral is at odds with the views of the majority of economists who believe that rates may not rise any further and, perversely, does not seemed to have quashed the insatiable drive that continues to buoy the housing market," he said.

But despite Mr Williams comments, some analysts do expect a further quarter percentage point rise in UK interest rates in the new year, as the BoE tries to dampen down inflation.

November's Consumer Price Index (CPI) jumped to 2.7%, from 2.4%, its highest rate in nearly a decade - increasing the chances of an interest rate rise early in 2007.

Lloyds TSB surveyed more than 2,000 consumers.

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