Consumers see no end to rate hikes

July's hike did little to reassure consumers that Bank of England base rates have peaked, despite five increases in less than a year, according to the latest Consumer Barometer from Lloyds TSB Corporate Markets.

Surveyed after July's quarter per cent increase in the base rate to 5.75 per cent, the majority of consumers are gearing up for further hikes, with 79 per cent of respondents predicting rates will be higher in 12 months' time. This is just 1 per cent lower than in June. Only 5 per cent of consumers thought interest rates would be lower in a year's time, the same as last month.

The latest base rate hike, however, saw consumers become more anxious about general job prospects. The balance of those reporting better rather than worse employment prospects compared to 12 months ago fell to -20 per cent in July, down from -17 per cent in June. This was despite recent official data showing continuing strong economic growth and a record number of people employed. Consumers also remained worried about the security of their own jobs with the balance of respondents feeling more rather than less secure compared to last year at -4 per cent in July, well below the six month average of -1.7 per cent.

Although official data showed annual CPI inflation declined further in June to 2.4 per cent, from 2.5 per cent in May, the survey showed consumers' price expectations remained elevated in July. The balance of respondents expecting prices to rise rather than fall in the next 12 months rose to 77 per cent from 74 per cent in June, near the survey record of 79 per cent.

Trevor Williams, chief economist, Lloyds TSB Corporate Markets, said: "The interest rate hike in July did little to reassure consumers there was an end in sight to the increases and they widely seem to agree with the prevailing view in financial markets that at least one more hike is on the horizon. This is probably a good thing in that it suggests consumers are preparing for higher mortgage payments. The growing uncertainty consumers feel about the labour market should appear in weaker confidence indices and a slowdown in spending in the coming months. The Bank of England will be watching this data particularly closely as it could determine whether they will need to raise interest rates again this year."