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Rates gloom for consumers

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Heavily indebted consumers are more concerned about possible interest rate rises than at any time since November 2004, a survey undertaken by Lloyds TSB has found.

Nearly 80% of those surveyed said that they expected interest rates to be higher in a year’s time than they are now, with only 4% reckoning that they will fall over the course of 2007. Fears of higher costs appear to outweigh possibly better returns from saving and investment.

Some retailers have expressed concern that fears of rising interest rates are having an adverse effect on consumer spending. Woolworths and Debenhams have warned of a tough Christmas shopping period ahead and some retail analysts in this area of UK investment reckon many mid-range shops will have their worst Christmas for 25 years.

Trevor Williams, Lloyds TSB chief economist, said: “Rate rises have dampened consumer optimism… despite the Bank of England holding the rate at 5% this month, consumers are expecting the gloom to last well into the New Year and potentially better returns from saving and investment are pushed into the background.”

He continued: “However, 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 in the UK investment arena and, perversely, does not seem to have quashed the insatiable drive that continues to buoy the housing market.”

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